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CAPITAL 


AND 


POPULATIOl^:. 


A  STUDY 

OF   THE 

ECOx\OMIC  EFFECTS  OF  THEIR  RELATIONS 
TO  EACH  OTHER. 


BY 

FREDEKICK  B.   HAWLEY. 


,      "    o°      J    .       >» 


NEW  YORK: 
D.    APPLETON    AND    COMPANY, 

1,  8,    AND    5    BOND    STREET. 

1882. 


COPTBIGHT  BY 

D      APPLETON    AND    COMPANY, 

1882. 


HBir/ 


PREFACE. 


My  position  as  an  economist,  as  exemplified  in  this 
treatise,  is  a  peculiar  one.  While  classing  myself,  I 
believe  justly,  as  a  strict  disciple  of  what  is  usually 
called  the  English  or  orthodox  school,  I  have  arrived 
at  results,  in  many  instances,  diametrically  opposed  to 
theirs ;  especially  on  the  subjects  of  free  trade  and 
taxation.  On  the  other  hand,  my  reasoning  presup- 
poses the  falsity  of  most  of  the  arguments  heretofore 
advanced  in  support  of  the  very  conclusions  I  uphold. 
As  I  antagonize  the  results  of  one  side  and  the  meth- 
ods of  the  other,  I  can  look  for  friends  in  neither 
camp.  ]^evertheless,  as  the  principle  I  have  enunci- 
ated really  effects  the  reconciliation  of  two  lines  of 
thought,  apparently  hopelessly  divergent,  I  may,  per- 
haps, expect  to  be  sustained  by  those  of  both  sides  who 
prefer  construction  to  destruction. 

It  would  be  false  modesty  in  me  to  seem  unaware 
that  the  economic  law  I  have  attempted  to  establish 
equals  in  its  influence  upon  economic  conclusions  any 
hitherto  ascertained.     Granted  its  truth,  it  throws  new 


M850521 


iv  PREFACE. 

and  decisive  light  on  nearly  all  the  unsolved  problems 
of  the  science.  That  it  is  true,  I  venture  to  be  the 
more  confident  of,  because  I  find  it  conceded  bj  both 
Mill  and  Kicardo,  although  thej  failed  to  apply  it,  or  at 
all  recognize  its  importance.  What  I  have  here  at- 
tempted is  to  reason  on  their  lines  beyond  the  limit 
where  they  stopped,  with  the  result  of  greatly  modify- 
ing and  sometimes  subverting  their  conclusions.  This 
I  have  done  without  in  any  case  impugning  their  pre- 
mises, or  controverting  their  reasoning,  further  than  to 
show  that,  while  otherwise  valid,  it  was  incomplete.  My 
anxiety  to  place  myself  in  accord  with,  rather  than  in 
antagonism  to,  these  great  thinkers  has  been  so  great 
as  to  lead  me  to  injure  the  literary  form  of  my  work 
by  making  it  substantially  a  critique  upon  Mill's  "Prin- 
ciples "  instead  of  an  independent  and  consecutive  argu- 
ment. This  has  necessitated  long  quotations,  already  so 
familiar  to  students  as  to  lack  interest  for  them.  The 
importance  of  showing  that  my  ideas  are  really  but  the 
further  development  of  those  of  the  orthodox  school 
must  be  my  excuse  for  this  ;  and  I  shall  be  pardoned  if 
it  has  enabled  me,  as  I  believe  it  has,  to  more  readily 
place  the  law  I  enunciate,  and  in  some  degree  eluci- 
date, in  its  proper  relation  to  the  established  truths  of 
the  science. 

Frederick  B.  Hawlet. 
New  York,  February^  1882, 


COlsTTEIfTS 


CHAFTEE  PAGE 

I. — Capital         ......  5 

II. — Increase  of  Capital      .  .  .  .  13 

III. — The  Tendency  of  Capital  to  oijtsteip  Population   51 
IV.— Fixed  Capital         .  .  .  .  .64 

V. — Panics      ......  77 

VI. — Ceedit  .  ,  .  .  .  .97 

VII. — Wages  and  Pkofits       .  .  .  .  113 

VIII. — Capital  and  Labob  .  .  .  .130 

IX. — Co-opeeation      .  .  .  .  .  139 

X. — Feee  Teade  and  Peoteotion         .  .  .144 

XI. — The  Equation  of  International  Demand     .  175 

XII. — Disteibution  of  Wealth  in  a  Peotected  Nation    204 

XIII.— Rent  .......      210 

XIV. — Commerce  .....  214 

XV. — Ultimate  Effects  of  Feee  Teade  and  Peotection  224 

XVI.— Taxation 235 

XVII. — Some  othee  Effects  of  the  Law       .            .  251 

XVIII.— Conclusion 262 


,.)„»»» 


CAPITAL  AND  POPULATION, 


CHAPTER  I. 

CAPITAL. 

John  Stuart  Mill,  in  his  "Principles  of  Political 
Economy,"  in  defining  capital,  says : 

"  The  distinction,  then,  between  capital  and  not-capital,  does  not 
lie  in  the  kind  of  commodities,  but  in  the  mind  of  the  capitalist — in 
his  will  to  employ  them  for  one  purpose  rather  than  another ;  and 
all  property,  however  ill  adapted  in  itself  for  the  use  of  laborers,  is 
a  part  of  capital,  so  soon  as  it,  or  the  value  to  be  received  from  it,  is 
set  apart  for  productive  reinvestment.  The  sum  of  all  the  values  so 
destined  by  their  respective  possessors,  composes  the  capital  of  the 
country.  Whether  all  those  values  are  in  a  shape  directly  appli- 
cable to  productive  uses,  maJces  no  difference.  Their  shape,  whatever 
it  may  he,  is  a  temporary  accident ;  hut,  once  destined  for  produc- 
tion, they  do  not  fail  to  find  a  way  of  transforming  themselves  into 
things  capable  of  being  applied  to  if'' — (Mill,  Book  I,  chapter  iv,  sec- 
tion 1.) 

In  Hicardo's  works,  chapter  v,  "  On  Wages,"  page  51, 
I  find  the  following  definition  : 

"  Capital  is  that  part  of  the  wealth  of  a  country  which  is  em- 
ployed in  production,  and  consists  of  food,  clothing,  raw  materials, 
machinery,  etc.,  necessary  to  give  effect  to  labor.'''* 


6  CAPITAL  AND  POPULATION. 

It  is  evident  that  these  definitions  differ  radically,  es- 
pecially in'tHe/passagesfY-'.hi^ihjI  have  put  in  italics. 

Mill  includes,  in  the  ^rm,  all  wealth  destined  to  ^vo- 
ductive'''V.QCijqiliptip'n^;VrhetKer.  fi^^  utilized  or  not. 

Until  the  mental  disposition  of  the  holder  is  changed,  it 
remains  capital,  and  only  ceases  to  be  such  when  its  des- 
tination is  changed  to  unproductive  consumption.  He 
also  includes,  not  only  the  necessaries  and  conveniences 
that  will,  or  may,  actually  be  demanded  by  the  laborer  as 
wages  and  for  the  facilities  and  tools  for  production,  but 
also  the  sum  of  such  luxuries  as  are  destined,  before  be- 
ing consumed,  to  be  exchanged  for  such  necessaries  and 
conveniences. 

Ricardo's  meaning  is  not  so  clear,  on  account  of  the 
ambiguity  of  the  words  "  is  employed."  He  seems,  how- 
ever, to  intend  to  confine  the  term  to  that  part  of  wealth 
actually  in  process  of  consumption  by  the  laborer  for  his 
sustenance,  or  actually  being  used  by  him,  as  tools  or 
machinery,  to  facilitate  production,  and  to  exclude  not 
only  all  wealth  not  fitted  for  consumption  or  use  by  la- 
borers, but  such  part  as  is  fitted,  but  not  at  the  time  so 
employed.  If  this  is  his  meaning,  circulating  capital  be- 
comes identical  with  what  is  commonly  called  "  the  wages 
fund,"  and  fixed  capital  with  such  part  of  the  machinery, 
tools,  etc.,  as  are  actually  in  use. 

It  may  be,  though  I  do  not  so  understand  him,  that 
by  "  is  employed "  he  means,  is  eventually  employed — 
in  which  case  his  definition  approaches  nearer  to  that  of 
Mill,  but  is  yet  far  from  being  identical  with  it. 

If  we  attempt  to  gather  his  meaning  from  his  writ- 
ings, we  shall  find  that  he  uses  the  term,  not  only  in  ac- 
cordance with  both  senses  of  his  own  definition,  though 
with  the  first  far  more  often  than  with  the  second,  but 


CAPITAL.  7 

also  with  the  sense  in  which  Mill  has  defined  it.  And 
the  same  remark  will  apply  to  the  writings  of  Mill,  who 
likewise  uses  it,  not  only  in  accordance  with  his  own  defi- 
nition, but  in  accordance  with  both  senses  of  Ricardo  be- 
sides. Mill,  indeed,  seems  utterly  oblivious  of  the  fact 
that  his  definition  differs  at  all  from  that  of  his  predeces- 
sor ;  while  Ricardo,  in  passages,  exhibits  some  perception, 
or  rather,  perhaps,  I  should  say,  an  indistinct  feeling  of 
the  distinction  to  which  I  am  drawing  attention.  Among 
others,  I  would  instance  the  note  to  chapter  viii,  in 
which  he  says : 

*'  There  can  be  no  greater  error  than  in  supposing  that  capital  is 
increased  by  non-consumption.  If  the  price  of  labor  should  rise  so 
high  that,  notwithstanding  the  increase  of  capital,  no  more  could 
be  employed,  I  should  say  that  such  increase  of  capital  would  be 
still  unproductively  consumed." 

Ricardo,  as  we  shall  see  elsewhere,*  and  as  this  passage 
shows,  perceived  and  acknowledged  that  an  increase  of 
capital,  in  Mill's  sense  of  the  term,  does  not  always  lead 
to  an  increase  in  his,  although  his  arguments  constantly 
assume  that  an  increase  of  wealth  does  practically  result 
in  an  increase  of  the  wages  fund  and  an  increased  produc- 
tion. He  here  perceives  the  dilemma,  and  attempts  to  es- 
cape from  it  by  the  assertion  that  such  increase  of  capital 
is  still  "  unproductively  consumed  " — i.  e.,  is  not  capital 
at  all.  But  in  no  sense  is  this  true.  It  is  not  unproduc- 
tively consumed  in  any  way  or  shape,  but  eventually, 
though  not  immediately,  productively  consumed.  He 
can,  if  he  so  chooses  to  use  the  word,  refuse  to  call  it 
capital,  but  he  can  not  claim  that  it  is  unproductively 
consumed,  for  it  is  not  consumed  at  all. 

*  For  a  further  instance,  see  chapter  on  wages  and  profit. 


8  CAPITAL  AND  POPULATION. 

I  shall  assume  throughout  this  treatise  that  Ricardo 
intends  to  denote,  bj  capital,  onlj  such  portion  of  wealth 
as  is  actively  engaged  in  production,  as  it  will  appear,  in 
the  course  of  the  argument,  that  most  of  his  deductions 
only  hold  good  when  the  word  is  used  in  this  exceedingly 
restricted  sense;  and  no  student  of  this  most  exact  of 
deductive  reasoners  can  doubt  for  a  moment  his  intention 
of  using  the  term  mainly  in  accordance  with  the  deduc- 
tions he  draws  from  it.  Places  can,  indeed,  be  found  in 
his  writings  where  he  gives  to  it  a  broader  signification, 
and  adopts  more  or  less  fully  its  popular  use ;  but  when 
this  occurs,  the  fault  must  be  attributed  rather  to  the 
application  than  to  the  accuracy  of  his  deductions. 

The  assertion  that  both  Ricardo  and  Mill  used  such  a 
fundamental  term  as  capital  in  various  senses,  without 
perceiving  that  they  did  so,  is  a  bold  one  for  any  one  to 
make,  but  it  has  been  forced  upon  me  by  a  careful,  and  I 
may  say  reverential,  study  of  their  writings  ;  and  I  shall, 
I  am  sure,  be  borne  out  in  it  by  fellow-students  when 
their  attention  is  drawn  to  the  subject.  This  at  least  is 
patent  even  at  this  stage  of  the  inquiry,  that  they  defined 
the  term  very  differently ;  and  it  will  be  acknowledged 
by  all  that,  starting  thus  from  conflicting  definitions,  they 
proceed  by  the  same  arguments  to  identical  conclusions. 
This  could  hardly  have  been  the  case  if  they  had  really 
differed  in  their  understanding  of  the  nature  of  capital ; 
and  I  do  not  fear  to  assert  that  in  similar  parts  of  their 
argument  they  rarely  do  differ  in  the  sense  in  which  they 
use  the  term,  notwithstanding  the  radical  difference  in 
their  definition  of  it. 

Which  definition  is  correct  must  be  our  next  consid- 
eration ;  and  there  can  be  no  doubt  but  that  the  prefer- 
ence must  be  given  to  that  of  Mill.    We  already  have  a 


CAPITAL.  9 

term,  viz.,  the  "  wages  fund,"  which  accurately  coincides 
with  "  circulating  capital "  as  defined  by  Ricardo ;  and  a 
supplementary  term  can  only  lead  to  the  further  confusion 
of  an  intricate  subject,  while  a  term  to  define  active  fixed 
capital  from  idle  is  not  needed.  The  popular  use  of  the 
word  certainly  accords  with  Mill's  definition;  and  the 
scientific  sense  should  certainly  agree  with  the  popular, 
in  considering  as  capital  all  wealth  destined  to  be  em- 
ployed productively,  and  from  which  an  increase  is  ob- 
tained or  hoped  for. 

Ricardo's  definition  differs  so  much  from  the  popular 
use  of  the  word,  that  conclusions  drawn  from  it,  however 
correct,  are  sure  to  be  misunderstood  and  misapplied 
in  practice.  Eeally  valuable  results  are  with  difficulty 
reached,  and,  when  reached,  with  difficulty  appreciated, 
when  the  words  in  which  they  are  expressed  are  ambigu- 
ous. Furthermore,  the  real  object  of  inquiry  is,  not  how 
production  is  effected  by  the  increase  of  the  wages  fund 
— that  is  a  simple  matter ;  but  by  the  general  increase  of 
wealth  in  all  its  forms — a  much  more  complicated  subject. 

I  would  myself  prefer  a  definition  of  the  term,  when 
scientifically  used,  broader  than  that  of  Mill,  but  not 
broader  than  its  popular  use.  "Wealth  I  would  define  as 
the  existent  products  of  labor,  whose  utility  is  not  yet 
exhausted  ;  capital,  as  that  portion  of  wealth  from  which 
an  income  or  profit  is  expected  in  addition  to  a  return 
of  the  principal.  Under  this  definition  national  capital 
would  be  the  same  as  under  MilFs,  for  no  wealth  not 
productively  employed  can  add  to  the  net  income  of  the 
community,  but  much  wealth  not  productively  employed 
nevertheless  produces  an  income  or  profit  to  its  possessors. 
All  that  part  of  wealth  reserved  from  immediate  for  pro- 
longed unproductive  consumption,  such  as  houses,  places 


10  CAPITAL  AND  POPULATION. 

of  amusement,  works  of  art,  etc.,  the  use  and  enjoyment 
of  which  are  a  source  of  income  to  their  possessors,  I 
would  prefer  to  regard  as  capital  to  them,  though  not  of 
course  to  the  community,  because  to  their  possessors  they 
are  productive.  The  distinction  does  not  affect  this  argu- 
ment, and  is  of  no  great  importance,  further  than  to  no- 
tice that  such  wealth  is  of  no  less  advantage  to  the  nation 
than  that  productively  engaged,  as,  although  it  adds  noth- 
ing to  the  sum  of  material  products,  it  immediately  grati- 
fies desires  similar  to  those  ultimately  satisfied  by  material 
products,  and  on  account  of  which  alone  material  products 
have  any  utility. 

Using  Mill's  or  my  own  definition  of  capital,  it  will  be 
necessary  to  divide  it  into  two  portions,  which  we  will 
call  "  dead  stock  "  and  "  active  stock  "  :  active  stock  be- 
ing coincident  with  that  portion  of  wealth  that  Ricardo 
defines  as  capital,  according  to  our  first  exemplification 
of  his  meaning — ^i.  e.,  all  wealth  that  is  at  the  time  pro- 
ductively engaged ;  and  dead  stock  being  that  portion 
excluded  by  him  and  included  by  Mill — i.  e.,  all  wealth 
destined  eventually,  but  not  immediately,  to  be  employed 
in  production. 

This  distinction  is  of  the  first  importance,  and  must 
be  constantly  borne  in  mind  during  any  discussion  and 
investigation  of  the  laws  and  nature  of  capital.  Al- 
though distinctly  recognized  by  all  economists,*  I  know 

*  Mill,  Book  I,  chapter  iv,  section  2 :  "As  whatever  of  the  produce 
of  the  country  is  devoted  to  production  is  capital,  so,  conversely,  the 
whole  of  the  capital  of  the  country  is  devoted  to  production.  This  sec- 
ond proposition,  however,  must  be  taken  with  some  limitations  and  ex- 
planations. A  fund  may  be  seeking  for  productive  employment,  and  find 
none  adapted  to  the  inclinations  of  its  possessor ;  it  then  is  capital  still, 
but  unemployed  capital.  Or  the  stock  may  consist  of  unsold  goods,  not 
susceptible  of  direct  application  to  productive  uses,  and  not,  at  the  mo- 


CAPITAL.  11 

of  none  who  have  realized  its  importance,  or  who  have 
consistently  observed  it  in  their  arguments.  They,  one 
and  all,  assume  that  the  amount  of  production  depends 
upon  the  amount  of  capital,  whereas  it  is  really  depend- 
ent only  on  the  amount  of  "active  stock,"  as  will  be 
immediately  acknowledged  by  every  one  who  gives 
the  subject  a  moment's  consideration.  Ricardo  would 
have  been  an  exception  to  this  criticism,  if  he  had  always 
been  consistent  with  his  own  definition,  faulty  as  it  is. 
He  identified  "  active  stock  "  and  capital ;  but,  if  he  had 
fully  appreciated  the  distinction,  he  could  hardly  have 
failed  to  recognize  that  he  was  defining  a  part  of  capital 
as  if  it  were  the  whole,  and  that  his  deductions  were  not 
true  of  the  term  in  its  broad  sense.  More  than  any  other 
economist,  his  views  coincide  with  mine,  and  it  is  mainly 
owing  to  his  failure  to  perceive  this  distinction  that  our 
conclusions  differ  so  radically. 

It  is  as  a  pupil  of  his  and  of  Mill  that  I  write,  and  I 
wish  to  be  distinctly  understood  as  accepting  nearly  all 
the  premises  and  conclusions  in  both  of  them  not  here 
especially  controverted,  and  to  draw  attention  to  the  fact 
that  all  of  my  premises,  both  so  far  and  yet  to  be  ad- 
vanced, are  theirs  also  with  a  single  exception — the  effect 

ment,  marketable ;  these,  until  sold,  are  in  the  condition  of  unemployed 
capital.  Again,  artificial  or  accidental  circumstances  may  render  it  neces- 
sary to  possess  a  larger  stock  in  advance — that  is,  a  larger  capital  before 
entering  on  production— than  is  required  by  the  nature  of  things.  Sup- 
pose that  the  government  lays  a  tax  on  the  production  in  one  of  its  earlier 
stages,  as,  for  instance,  by  taxing  the  material.  The  manufacturer  has  to 
advance  the  tax  before  commencing  the  manufacture,  and  is,  therefore, 
under  a  necessity  of  having  a  larger  accumulated  fund  than  is  required 
for,  or  is  actually  employed  in,  the  production  which  he  carries  on.  He 
must  have  a  larger  capital  to  maintain  the  same  quantity  of  productive 
labor." 


12  CAPITAL  AND  POPULATION. 

of  a  high  rate  of  wages  upon  population.  That  my  con- 
clusions are  in  many  points  different  from  theirs,  is  solely 
due  to  their  neglectiug  to  follow  up  their  own  arguments 
to  their  proper  termination.  That  they  did  not  do  so,  we 
shall  see,  later  on,  was  due,  not  so  much  to  the  want  of 
logical  acumen,  as  to  the  fact  that  there  was  nothing  in 
their  surroundings  to  suggest  further  pursuit.  The  eco- 
nomic condition  of  England  apparently  verified  their 
conclusions,  and  they  were  naturally  satisfied  with  such 
verification.  I  am  especially  anxious  not  to  be  classed  in 
the  category  of  those  who  have  attempted  to  confute, 
without  understanding,  these  great  writers,  but  fear  I 
shall  not  wholly  escape,  as  my  conclusions  will  run 
counter  to  some  firmly-held  opinions,  and  will  conflict 
with  many  interests,  both  national  and  individual ;  but 
I  can  do  no  more  than  proclaim  myself  their  disciple, 
and  disclaim  any  attempt  at  refuting  the  founders  of  the 
science.  All  I  shall  say  is  built  upon  them  as  a  founda- 
tion, and  all  I  hope  to  accomplish  is  to  raise  their  struc- 
ture one  story  higher. 


CHAPTEE  II. 


INCREASE   OF   CAPITAL. 


All  wealth,  and  therefore  all  capital,  is  the  result  of 
abstinence.  The  products  of  labor  may  be  consumed  by 
the  producer,  or  may  be  exchanged  for  other  products  to 
be  consumed,  or  such  products,  whether  made  by  him  or 
acquired,  may  be  reserved  for  personal  consumption ;  in 
which  cases  they  are  said  to  be  unproductively  consumed. 
If,  on  the  other  hand,  the  producer  desires  to  save  what 
he  has  brought  into  being,  he  can  do  so  in  two  ways :  by 
employing  it  as  active,  or  retaining  it  as  dead,  stock.  He 
can  employ  it  immediately  in  sustaining  himself  and  oth- 
ers while  engaged  in  further  production,  if  its  nature  is 
fitted  for  such  use ;  or  he  can,  as  soon  as  possible,  exchange 
it  for  such  things  as  are  so  fitted,  and  then  employ  them 
productively ;  or,  if  he  so  elects,  he  can  reserve  his  prod- 
uct, or  the  things  for  which  he  has  exchanged  it,  to  be 
ultimately  but  not  immediately  employed  productively 
by  himself  or  others. 

In  a  barbarous  state  of  society,  where  each  individual 
endeavors  to  supply  all  his  wants  himself,  nearly  all  prod- 
uce destined  for  productive  consumption  immediately 
takes  the  form  of  "  active  stock  " ;  *  but,  when  division  of 

*  By  the  term  "  active  stock  "  I  mean  to  include  not  only  what  is  actu- 
ally at  the  moment  being  consumed  by  the  laborer,  but  also  such  stock  as 


14  CAPITAL  AND  POPULATION. 

labor  has  been  established,  some  reservation  of  products 
must  occur,  at  least  sufficient  to  allow  time  for  exchanges 
to  be  effected. 

With  the  exception  of  the  food  which  farmers  reserve 
for  the  consumption  of  themselves,  their  cattle,  and  those 
of  their  laborers  whose  wants  they  immediately  supply, 
very  nearly  all  of  the  products  of  civilized  labor  enter 
first  into  "dead  stock."  All  products,  which  the  pro- 
ducer can  not  himself  utilize,  necessarily  do  so. 

From  this  fund  of  "  dead  stock  "  products  are  distrib- 
uted to  the  fund  for  unproductive  consumption  and  to 
that  for  productive  consumption.  What  goes  to  the 
former  fund,  decreases  the  amount  of  "  dead  stock " — 
what  goes  to  the  latter,  increases  it,  as  the  amount  of  pro- 
duction is  always,  on  the  average,  greater  than  that  of 
the  productive  consumption  which  produces  it ;  because, 
when  this  ceases  to  be  the  case,  the  motive  to  produce  is 
taken  away.  But  dead  stock  may  not  be  distributed  at 
once  to  either  fund,  but  may  be  reserved,  to  await  contin- 
gencies. Now,  what  is  it  that  determines  the  proportion 
in  which  the  gross  stock  will  be  divided  between  these 
three  funds  ? 

Evidently  the  relative  strength  of  the  desires  to  accu- 
mulate and  to  enjoy  will  determine  the  amount  of  the 
fund  for  unproductive  consumption,  and  the  rate  of  profit 
the  amount  of  that  for  productive  consumption ;  but  the 
rate  of  profit  itself  depends  upon  the  amount  of  dead 
stock.  Any  increase  of  dead  stock,  other  things  (includ- 
ing gold)  remaining  the  same,  lowers  its  money-value 
without  affecting  money-wages ;  or,  if  money- wages  are 
lowered,  its  money-value  suffers  a  yet  greater  deprecia- 

he  will  require  to  support  him  until  the  product  he  is  engaged  upon  is  com- 
pleted, and  which  is  preserved  by  him  or  for  him,  for  that  purpose. 


INCREASE  OF  CAPITAL.  15 

tion.*  In  the  supposed  circumstances  proportional  wages 
must  rise  at  the  expense  of  profits.  But  if  an  increase  of 
dead  stock  lowers  profits,  and  a  decrease  of  profits  dis- 
courages the  conversion  of  dead  into  active  stock,  it  fol- 
lows that  the  "  wages-fund  "  will  be  smallest  when  dead 
stock  is  relatively  most  abundant,  and  when  the  rate  of 
proportional  wages  is  the  highest.  We  are  entitled,  then, 
to  say  that  the  amount  of  dead  stock  that  will  become 
active  depends  upon  the  amount  of  dead  stock  itseK,  and 
varies  inversely  with  it : 

"  When  the  production  of  a  commodity  is  the  effect  of  labor  and 
expenditure,  whether  the  commodity  is  susceptible  of  unlimited 
multiplication  or  not,  there  is  a  minimum  value  which  is  the  essen- 
tial condition  of  its  being  permanently  produced.  The  value  at  any 
particular  time  is  the  result  of  supply  and  demand ;  and  is  always 
that  which  is  necessary  to  create  a  marTcet  for  the  existing  supply. 
But  unless  that  value  is  sufficient  to  repay  the  cost  of  production^  and 
to  afford^  besides,  the  ordinary  expectation  of  profit^  the  commodity 
will  not  continue  to  le  produced.  Capitalists  will  not  go  on  perma- 
nently producing  at  a  loss.  They  will  not  even  go  on  producing  at 
a  profit  less  than  they  can  live  upon.  Persons  whose  capital  is  al- 
ready embarked,  and  can  not  be  easily  extricated,  will  persevere  for 
a  considerable  time  without  profit,  and  have  been  known  to  perse- 
vere even  at  a  loss,  in  hope  of  better  times.  But  they  will  not  do  so 
indefinitely,  or  when  there  is  nothing  to  indicate  that  times  are 
likely  to  improve.     No  new  capital  will  be  invested  in  an  employ- 

*  This  is  not  true,  of  course,  when  the  increase  of  dead  stock  consists 
wholly  or  largely  of  money.  In  such  cases  prices  and  profits  will  rise  and 
proportional  wages  fall,  as  happens  whenever  the  currency  is  inflated.  But 
in  all  cases,  when  the  increase  of  dead  stock  is  due  wholly  to  saving,  there 
will  be  no  increase  in  the  amount  of  money  through  the  operations  of  ex- 
change until  after  prices  have  been  depressed  by  such  increase  of  dead 
stock  disturbing  the  proportion  between  gold  and  other  commodities.  If 
such  increase  of  stock  is  universal,  the  world  over,  the  depression  of  money 
prices  will  be  permanent,  until  such  stock  is  unproductively  consumed  or 
the  production  of  gold  increased. 


16  CAPITAL  AND  POPULATION. 

ment,  unless  there  be  an  expectation,  not  only  of  some  profit,  but  of 
a  profit  as  great  (regard  being  had  to  the  degree  of  eligibility  of  the 
employment  in  other  respects)  as  can  be  hoped  for  in  any  other  oc- 
cupation at  that  time  and  place.  "When  such  profit  is  evidently  not 
to  be  had,  if  people  do  not  actually  withdraw  their  capital,  they  at 
least  abstain  from  replacing  it  when  consumed.  The  cost  of  pro- 
duction, together  with  the  ordinary  profit,  may,  therefore,  be  called 
the  necessary  price  or  value  of  all  things  made  by  labor  and  capital. 
Nobody  willingly  produces  in  the  prospect  of  loss.  Whoever  does 
so,  does  it  under  a  miscalculation,  which  he  corrects  as  fast  as  he 
is  able." — (Mill,  Book  III,  chapter  iii,  section  1.) 

We  have  supposed  in  the  above  argument  that  "  oth- 
er things  remained  the  same."  What  was  included  under 
that  head  was  the  state  of  the  arts,  social  customs  and 
regulations,  the  natural  fertility  of  the  soil,  and  the  num- 
ber of  the  population.  Improvement  in  the  two  former 
conditions,  or  any  increase  in  the  two  latter,  will  of  course 
allow  of  a  corresponding  increase  of  dead  stock,  without 
its  being  followed  by  a  rise  of  proportional  wages  and  fall 
in  profits ;  and  such  increase  will  go  partly  to  swell  the 
wages-fund  or  active  stock.  It  is  only  when  the  increase 
of  capital  outstrips  the  others  that  a  diminution  of  the 
wages-fund  and  a  rise  of  wages  will  occur.  Economists 
have,  I  believe  universally,  held  that  such  diminution  of 
the  wages-fund  could  be  but  temporary;  because  the 
stimulus  to  population  of  a  high  rate  of  wages  would, 
before  very  long,  readjust  the  ratio  between  capital  and 
population.  But  the  real  stimulus  to  population  is  not  a 
high  rate  of  wages  in  the  sense  in  which  wages  are  com- 
pared with  profits,  because  that  surely  entails  a  lessening 
of  employment,  but  a  low  rate,  because  then  nearly  all 
the  members  of  the  laboring  class  are  earning  something, 
and  the  average  of  the  necessities  and  comforts  of  life 
that  laborers,  employed  and  unemployed,  receive  is  then 


INCREASE  OF   CAPITAL.  17 

greater  than  when  some  are  receiving  high  wages  and 
many  are  receiving  none  at  all.  In  other  words,  the  stim- 
ulus to  population  is  affected  not  by  the  rate  of  propor- 
tional wages,  as  economists  have  hithero  universally  as- 
sumed, but  by  the  proportion  between  the  gross  amount 
of  the  wages-fund  and  the  number  [of  those  depending 
upon  it  for  subsistence — a  very  different  thing,  for  such 
proportion  is  always  the  least  when  the  rate  of  propor- 
tional wages  is  highest. 

The  normal  ratio  between  capital  and  population, 
when  disturbed  by  an  increase  of  capital,  can  not  there- 
fore be  restored  by  the  stimulus  to  population  afforded 
by  such  increase ;  because  its  tendency  is  not  to  stimu- 
late, but  to  restrain.  The  proper  proportion  of  dead 
stock  can  only  be  restored,  in  the  absence  of  exceptional 
circumstances,  by  an  increase  of  unproductive  consump- 
tion, which  directly  decreases  the  fund,  or  by  converting 
less  of  it  into  active  stock,  which  indirectly  decreases  the 
fund,  by  preventing  further  additions  to  it  being  made, 
and  thus  allows  the  ordinary,  or  even  a  less  than  ordinary, 
unproductive  consumption  to  deplete  it.  But  the  former 
of  these  causes  can  not,  or  rather  will  not,  act,  because, 
when  an  excess  of  dead  stock  lessens  both  profits  and  the 
wages-fund,  neither  capitalists  nor  laborers  will  have  as 
large  incomes  to  expend,  and  they  will  consequently  con- 
sume less  unproductively  than  before,  instead  of  more, 
and  will  thus  retard  instead  of  assist  the  readjustment. 

An  excess  of  dead  stock  can  only  be  practically  done 
away  with  by  decreasing  production,  and  the  only  way  to 
escape  the  necessity  of  so  doing  is  to  prevent  a  growth 
of  capital  faster  than  that  of  population. 

The  reader  will  please  notice  that  I  do  not  here  as- 
sert over-production  to  be  an  evil,  but  only  that  over-ac- 


18  CAPITAL  AND  POPULATION. 

cumulation  leads  necessarily  to  a  lessened  production,  and 
tliat  such  lessened  production  is  an  evil. 

The  importance  of  the  preceding  paragraphs  to  the 
argument  can  hardly  be  overstated,  and  I  emphasize  them 
by  thus  drawing  attention  to  them,  fearing  from  the 
brevity  of  my  statement  that  the  importance  of  the  prin- 
ciples involved  will  not  be  enough  considered.  They  are 
the  only  necessary  premises  that  I  nse,  for  which  I  am 
unable  to  find  any  authority  in  Mill  and  Ricardo  them- 
selves. Their  truth  can  not  be  doubted,  nor  can  it  be 
gainsaid  that,  if  Mill  and  Ricardo  had  taken  notice  of  the 
fact  that  increase  of  dead  stock  decreases  active  stock, 
and  restrains  population  instead  of  stimulating  it,  they 
would  have  modified  their  conclusions  very  nearly,  if  not 
quite,  in  accordance  with  mine. 

I  now  desire  to  verify,  by  quotation  and  criticism,  the 
somewhat  bold  charge  I  have  made  in  the  preceding  chap- 
ter, that  both  these  writers  use  the  fundamental  term  "  cap- 
ital "  loosely  and  inaccurately,  and  in  conflicting  senses. 

In  Book  II,  chapter  xi,  section  3,  Mill  says  : 

"  Wages  depend,  then,  on  the  proportion  between  the  number 
of  the  laboring  population  and  the  capital,  or  other  funds,  devoted 
to  the  purchase  of  labor ;  we  will  say,  for  shortness,  the  capital.  If 
wages  are  higher  at  one  time  or  place  than  at  another,  if  the  sub- 
sistence and  comfort  of  the  class  of  hired  laborers  are  more  ample, 
it  is  for  no  other  reason  than  because  capital  bears  a  greater  propor- 
tion to  population.  It  is  not  the  absolute  amount  of  accumulation 
or  of  production  that  is  of  importance  to  the  laboring  class ;  it  is 
not  the  amount  even  of  the  funds  destined  for  distribution  among 
the  laborers ;  it  is  the  proportion  between  those  funds  and  the  num- 
bers among  whom  they  are  shared.  The  condition  of  the  class  can 
be  bettered  in  no  other  way  than  by  altering  that  proportion  to 
their  advantage;  and  every  scheme  for  their  benefit,  which  does 
not  proceed  on  this  as  its  foundation,  is,  for  all  permanent  purposes, 
a  delusion." 


INCREASE  OF  CAPITAL.  19 

This  passage  singularly  exemplifies  Mill's  confusion 
of  thought  on  the  subject  we  are  discussing.  In  his  first 
sentence,  if  he  means  by  wages  real  wages,  they  depend 
mainly  on  the  margin  of  cultivation,  and,  in  so  far  as 
they  are  affected  by  it,  do  not  depend  directly  but  in- 
versely on  the  amount  of  capital,  as  he  defines  it ;  though 
they  do  depend  upon  it  in  Ricardo's  sense  of  the  term. 
If  by  wages  he  means  proportional  wages,  they  depend 
not  upon  "  the  number  of  the  laboring  population,"  but 
upon  the  ratio  of  the  value  of  the  wages-fund  to  the 
value  of  the  product.  In  his  second  sentence  he  treats 
the  two  clauses,  "  if  wages  are  higher  at  one  time  or  place 
than  at  another  "  and  "  if  the  subsistence  and  comfort  of 
the  class  of  hired  laborers  are  more  ample,"  as  identical 
propositions.  If  he  means  by  wages  the  rate  of  real 
wages — i.  e.,  the  average  sum-  of  necessaries  and  comforts 
each  laborer  employed  or  unemployed  receives — they  are 
identical ;  but  neither  assertion  is  true,  unless  he  uses  capi- 
tal in  the  sense  of  Ricardo ;  and  it  is  hardly  supposable 
that  he  does  so  use  it,  as  it  is  very  unlikely  that  he  should 
attach  the  importance  he  seems  to,  to  so  simple  a  state- 
ment as  that,  the  amount  each  laborer  receives  can  be 
found  by  dividing  the  wages-fund  by  the  number  of  la- 
borers, and  yet  that  is  all  the  statement  will  then  include. 
If  he  means  proportional  wages,  and  adheres  to  his  own 
definition  of  capital,  they  are  not  identical,  as  his  propo- 
sition is  true  as  to  the  first  clause  and  not  true  as  to  the 
second.  If  he  uses  the  term  in  Ricardo's  sense,  they  are 
likewise  not  identical,  as  the  second  is  true  and  the  first 
not.  Whichever  way  we  interpret  Mill's  meaning,  we 
find  an  inaccuracy  or  an  inconsistency. 

Now  let  us  compare  Mill's  account  of  the  possible  in- 
crease of  capital  with  that  I  have  ventured  to  present.. 


20  CAPITAL  AND  POPULATIOK 

In  Book  I,  chapter  v,  section  3,  lie  says : 
'^  While,  on  the  one  hand,  industry  is  limited  by  capital,  so,  on 
the  other,  every  increase  of  capital  gives,  or  is  capable  of  giving, 
additional  employment  to  industry;  and  this  without  assignable 
limit.  I  do  not  mean  to  deny  that  the  capital,  or  part  of  it,  may  be 
so  employed  as  not  to  support  laborers,  being  fixed  in  machinery, 
buildings,  improvement  of  land,  and  the  like.  In  any  large  increase 
of  capital  a  considerable  portion  will  generally  be  thus  employed, 
and  will  only  co-operate  with  laborers,  not  maintain  them.  "What 
I  do  intend  to  assert  is,  that  the  portion  which  is  destined  to  their 
maintenance  may  (supposing  no  alteration  in  anything  else)  be 
indefinitely  increased,  without  creating  an  impossibility  of  finding 
them  employment ;  in  other  words,  that  if  there  are  human  beings 
capable  of  work,  and  food  to  feed  them,  they  may  always  be  em- 
ployed in  producing  something.  This  proposition  requires  to  be 
somewhat  dwelt  upon,  being  one  of  those  which  it  is  exceedingly 
easy  to  assent  to  when  presented  in  general  terms,  but  somewhat 
diflBcult  to  keep  fast  hold  of  in  the  crowd  and  confusion  of  the 
actual  facts  of  society.  It  is  also  very  much  opposed  to  common 
doctrines.  There  is  not  an  opinion  more  general  among  mankind 
than  this,  that  the  unproductive  expenditure  of  the  rich  is  neces- 
sary to  the  employment  of  the  poor.  Before  Adam  Smith,  the  doc- 
trine had  hardly  been  questioned ;  and  ever  since  his  time,  authors 
of  the  highest  name  and  of  great  merit*  have  contended  that  if 
consumers  were  to  save  and  convert  into  capital  more  than  a  limited 
portion  of  their  income,  and  were  not  to  devote  to  unproductive 
consumption  an  amount  of  means  bearing  a  certain  ratio  to  the  capi- 
tal of  the  country,  the  extra  accumulation  would  be  merely  so  much 
waste,  since  there  would  be  no  market  for  the  commodities  which 
the  capital  so  created  would  produce.  I  conceive  this  to  be  one  of 
the  many  errors  arising  in  political  economy,  from  the  practice  of 
not  beginning  with  the  examination  of  simple  cases,  but  rushing  at 
once  into  the  complexity  of  concrete  phenomena.  Every  one  can 
see  that  if  a  benevolent  government  possessed  all  the  food,  and  all 
the  implements  and  materials,  of  the  community,  it  could  exact  pro- 
ductive labor  from  all  capable  of  it,  to  whom  it  allowed  a  share  in 
the  food,  and  could  be  in  no  danger  of  wanting  a  field  for  the  em- 

*  For  example,  Mr.  Malthus,  Dr.  Chalmers,  M.  de  Sismondi. 


INCREASE  OF  CAPITAL.  21 

ployment  of  this  productive  labor,  since  as  long  as  there  was  a  sin- 
gle want  unsaturated  (which  material  objects  could  supply)  of  any- 
one individual,  the  labor  of  the  community  could  be  turned  to  the 
production  of  something  capable  of  satisfying  that  want.  Now,  the 
individual  possessors  of  capital,  when  they  add  to  it  by  fresh  accu- 
mulations, are  doing  precisely  the  same  thing  which  we  suppose  to 
be  done  by  a  benevolent  government.  As  it  is  allowable  to  put  any 
case  by  way  of  hypothesis,  let  us  imagine  the  most  extreme  case 
conceivable.  Suppose  that  every  capitalist  came  to  be  of  opinion 
that,  not  being  more  meritorious  than  a  well-conducted  laborer,  he 
ought  not  to  fare  better ;  and  accordingly  laid  by,  from  conscien- 
tious motives,  the  surplus  of  his  profits;  or  suppose  this  abstinence 
not  spontaneous,  but  imposed  by  law  or  opinion  upon  all  capitalists, 
and  upon  land-owners  likewise.  Unproductive  expenditure  is  now 
reduced  to  its  lowest  limit ;  and  it  is  asked,  How  is  the  increased 
capital  to  find  employment  ?  Who  is  to  buy  the  goods  which  it  will 
produce?  There  are  no  longer  customers  even  for  those  which 
were  produced  before.  The  goods,  therefore  (it  is  said),  will  remain 
unsold;  they  will  perish  in  the  warehouses,  until  capital  is  brought 
down  to  what  it  was  originally,  or  rather  to  as  much  less,  as  the 
demand  of  the  consumers  has  lessened.  But  this  is  seeing  only  one 
half  of  the  matter.  In  the  case  supposed,  there  would  no  longer  be 
any  demand  for  luxuries,  on  the  part  of  capitalists  and  land-owners. 
But  when  these  classes  turn  their  income  into  capital,  they  do  not 
thereby  annihilate  their  power  of  consumption ;  they  do  but  trans- 
fer it  from  themselves  to  the  laborers  to  whom  they  give  employ- 
ment. Now,  there  are  two  possible  suppositions  in  regard  to  the 
laborers ;  either  there  is,  or  there  is  not,  an  increase  of  their  num- 
bers, proportional  to  the  increase  of  capital.  If  there  is,  the  case 
offers  no  difficulty.  The  production  of  necessaries  for  the  new 
population  takes  the  place  of  the  production  of  luxuries  for  a  por- 
tion of  the  old,  and  supplies  exactly  the  amount  of  employment 
which  has  been  lost.  But  suppose  that  there  is  no  increase  of  popu- 
lation. The  whole  of  what  was  previously  expended  in  luxuries,  by 
capitalists  and  landlords,  is  distributed  among  the  existing  laborers, 
in  the  form  of  additional  wages.  "We  will  assume  them  to  be  al- 
ready sufficiently  supplied  with  necessaries.  What  follows?  That 
the  laborers  become  consumers  of  luxuries,  and  the  capital  previ- 
ously employed  in  the  production  of  luxuries  is  still  able  to  employ 


22  CAPITAL  AND  POPULATION". 

itself  in  the  same  maDner;  the  difference  being,  that  the  luxuries 
are  shared  among  the  community  generally,  instead  of  being  con- 
fined to  a  few.  The  increased  accumulation  and  increased  produc- 
tion might,  rigorously  speaking,  continue,  until  every  laborer  had 
every  indulgence  of  wealth,  consistent  with  continuing  to  work; 
supposing  that  the  power  of  their  labor  were  physically  sufficient  to 
produce  all  this  amount  of  indulgences  for  their  whole  number. 
Thus  the  limit  of  wealth  is  never  deficiency  of  consumers,  but  of 
producers  and  productive  power.  Every  addition  to  capital  gives 
to  labor  either  additional  employment,  or  additional  remuneration ; 
enriches  either  the  country  or  the  laboring  class.  If  it  finds  addi- 
tional hands  to  set  to  work,  it  increases  the  aggregate  produce;  if 
only  the  same  hands,  it  gives  them  a  larger  share  of  it ;  and  perhaps 
even  in  this  case,  by  stimulating  them  to  greater  exertions,  aug- 
ments the  produce  itself." 

Even  if  we  assent  to  every  subsequent  proposition  in 
this  quotation,  the  assertion  in  the  first  sentence,  that 
"  every  increase  of  capital  gives  or  is  capable  of  giving 
additional  employment  to  industry,  and  this  without  as- 
signable limit,"  is  not  true.  If  we  suppose  population  to 
keep  pace  with  or  increase  faster  than  capital,  the  time 
must  eventually  arrive  when  every  capitalist  and  laborer 
is  reduced  to  the  barest  necessities ;  and  then  a  further 
increase  of  capital  can  not  lead  to  any  increase  in  popula- 
tion or  production.  Such  further  increase,  which  must 
come  entirely  from  rentals,  would  then  surely  fail  to  give 
"additional  employment  or  remuneration  to  industry." 
If  population  did  not  increase  as  fast  as  capital,  the  time 
would  eventually  arrive  when  all  the  population  in 
existence,  willing  to  work  for  all  they  produced,  would 
be  employed  in  the  most  advantageous  manner  that  the 
state  of  the  arts  would  allow.  An  increase  of  capital, 
then,  coming  from  rent  or  wages  (it  could  not  come  from 
profits,  as  they  would   be  annihilated),  could  give  no 


INCKEASE   OF  CAPITAL.  23 

additional  employment,  for  there  would  be  no  more 
laborers  to  be  set  to  work.  There  are  then  "  assignable 
limits"  to  capital,  even  under  the  wildest  and  most 
improbable  suppositions. 

But,  passing  this,  if  we  hold  Mill  to  his  definition,  the 
whole  reasoning  is  unsound,  for  the  infinite  increase  of 
capital  he  supposes  might  go  to  the  increase  of  dead  and 
not  of  active  stock,  as  indeed  it  would,  capitalists  being 
human  ;  in  which  case  no  more  labor  would  be  employed 
than  before  it  took  place.  If,  on  the  other  hand,  by  capi- 
tal he  means  the  wages-fund,  his  argument  is  true  enough, 
but  more  curious  than  valuable.  Indeed,  I  fail  to  see  how 
it  can  in  any  sense  be  called  political  economy.  I  have 
always  conceived  that  science  to  be  an  inquiry  into  the 
acquisition  and  distribution  of  wealth,  not  by  disinterest- 
edly benevolent  beings,  but  by  self-interested  men.  That 
men  will  act  in  accordance  with  their  real  or  supposed  in- 
terest, is  the  major  premise  of  all  economic  reasoning.  I 
do  not  know  to  what  science  to  refer  an  argument  based 
on  the  supposition  that  any  class  of  men  will  not  do  so, 
but  I  am  quite  certain  that  such  science  is  not  economic. 
This  whole  quotation  is  an  attempt  to  show  what  would, 
or  could,  occur  if  capitalists  were  content  to  go  on  pro- 
ducing with  no  hope  of  a  gain.  Is  there  a  single  eco- 
nomic doctrine  that  can  stand  such  a  test  ?  What  would 
become  of  Malthus's  theory  of  population,  if  laborers 
would  work  without  wages  ?  What  of  Kicardo's  theory 
of  rent,  if  landlords  and  tenants  were  indifferent  to  the 
rentals  paid  and  received  ?  What  of  the  proposition  that 
profits  tended  to  equalization,  if  capitalists  were  careless 
of  what  profit  they  obtained  ?  And  yet  we  are  asked  to 
believe  that  over-accumulation  is  impossible,  because  it 
would  be  so  if  capitalists  were  indifferent  to  profit,  and 


^ 


24  CAPITAL  AND  POPULATIOIT. 

we  are  scouted  as  ignorant  visionaries  if  we  venture  to 
suggest  tliat  it  may  be  the  cause  of  our  periods  of  indus- 
trial stagnation.     Mill  sajs : 

"Authors,  of  the  highest  name  and  of  great  merit,  have  con- 
tended that  if  consumers  were  to  save  and  convert  into  capital  more 
than  a  limited  portion  of  their  income,  and  were  not  to  devote  to 
unproductive  consumption  an  amount  of  means  bearing  a  certain 
ratio  to  the  capital  of  the  country,  the  extra  accumulation  would  be 
merely  so  much  waste,  since  there  would  be  no  market  for  the  com- 
modities which  the  capital,  so  created,  would  produce." 

If  he  merely  means  to  assert,  following  Say,  that  the 
supply  of  commodities  constitutes  the  demand,  what  he 
says  is  true,  but  is  inapplicable  to  the  discussion.  The  word 
"  market,"  as  used  by  his  opponents,  implies  very  much 
more  than  he  seems  to  suppose,  and  the  sense  in  which 
they  use  the  word  is  its  proper  signification,  both  popu- 
larly and  scientifically.  When  men  speak  of  a  good  or 
bad  market,  they  do  not  mean  a  market  in  which  more 
goods  can  be  bought  than  can  be  sold,  or  vice  versa^  but 
they  mean  a  market  in  which,  at  the  going  prices,  goods 
can  be  exchanged  for  such  amount  of  money  or  other 
things  as  will,  when  expended  in  production,  more  than 
reproduce  or  less  than  reproduce  the  original  things.  If 
the  goods  will  buy  more  labor  than  it  took  to  produce 
them,  the  market  is  good ;  if  less,  the  market  is  poor. 
Now  insert  before  the  word  "  market "  the  word  ''  remu- 
nerative," and,  tautological  though  it  be,  the  addition 
makes  it  evident  that  Mill's  opponents  have  given  a  true 
and  valid  reason  for  all  their  assertions. 

I  do  not  remember  to  have  anywhere  seen  the  obser- 
vation that  Say's  principle,  applied  as  Mill  applies  it, 
proves  as  well  that  no  single  commodity  can  be  in  excess, 
as  that  material  commodities  generally  can  not  be  so.    No 


INCREASE  OF  CAPITAL.  25 

matter  what  the  quantity  of  a  single  commodity,  it  would 
exchange  for  something ;  and  we  can  not  say  of  it  that 
more  has  been  produced  than  can  he  exchanged^  and  like- 
wise we  can  not  say  this  of  commodities  generally,  but 
we  can  say  both  of  single  commodities  and  material  com- 
modities in  general,  that  more  has  been  produced  than 
will  he  exchanged  ;  and  this  is  all  that  there  is  any  neces- 
sity of  affirming  to  establish  the  fact  that  over-accunwi- 
lation  and  general  glut  can  occur.  In  the  sense  of  our  dis- 
cussion, labor  is  a  commodity,  though  not  a  material  one. 
When  the  possibility  of  a  general  glut  is  asserted,  it  is  not 
meant  that  both  labor  and  material  commodities  may  be  in 
excess,  but  only  that  all  material  things  may  be  in  excess 
as  compared  with  labor — the  one  great  immaterial  com- 
modity. In  that  sense,  and  it  is  the  sense  in  which  its  ad- 
vocates have  really  used  the  term,  a  more  or  less  general 
glut  is  not  only  a  possible  but  a  frequent  occurrence. 

As  this  is  an  important  point  in  the  discussion,  I  make 
another  quotation  from  Mill — premising  that  a  "gen- 
eral glut "  is  the  result  of  over-accumulation  and  not  of 
over-production.  Excessive  production,  supposing  such  a 
thing  possible,  need  not  necessarily  result  in  accumulation 
at  all.  To  affirm  that  over-production  and  over-accumu- 
lation are  equivalent  things,  can  only  be  done  on  the  sup- 
position that  Mill's  definition  of  capital  coincides  with 
Ricardo's;  or,  in  other  words,  that  all  wealth  destined 
for  productive  consumption  immediately  constitutes  the 
wages-fund. 

Accumulation  will  ordinarily  be  large  when  the  pro- 
duction is  great,  because  production  will  not  be  great  un- 
less profits  are  high,  and  savings  are  mainly  made  from 
profits;  but  there  is  no  necessary  connection  between 
them,  as  many  things  can  intervene  to  prevent  accumu- 


26  CAPITAL  AND  POPULATION. 

lation  in  sucli  times.  There  is,  of  course,  a  tendency  for 
rapid  production  to  result  in  excessive  accumulation ;  and 
it  is  the  counteraction  of  this  tendency  that  Mill  argues 
against  and  that  I  advocate. 

To  fully  present  Mill's  reasoning  to  the  reader,  I  here 
quote  at  great  length  from  Book  III,  chapter  xiv,  sec- 
tion 1 : 

"After  the  elementary  exposition  of  the  theory  of  money  con- 
tained in  the  last  few  chapters,  we  shall  return  to  a  question  in  the 
general  theory  of  value,  which  could  not  be  satisfactorily  discussed 
until  the  nature  and  operations  of  money  were  in  some  measure 
understood,  because  the  errors,  against  which  we  have  to  contend, 
mainly  originate  in  a  misunderstanding  of  these  operations. 

*'  We  have  seen  that  the  value  of  everything  gravitates  toward  a 
certain  medium  point  (which  has  been  called  the  natural  value), 
namely,  that  at  which  it  exchanges  for  every  other  thing  in  the  ratio 
of  their  cost  of  production.  We  have  seen,  too,  that  the  actual  or 
market  value  coincides,  or  nearly  so,  with  the  natural  value  only 
on  an  average  of  years,  and  is  continually  either  rising  above  or 
falling  below  it,  from  alterations  in  the  demand,  or  casual  fluctuations 
in  the  supply ;  but  that  these  variations  correct  themselves,  through 
the  tendency  of  the  supply  to  accommodate  itself  to  the  demand 
which  exists  for  the  commodity  at  its  natural  value.  A  general  con- 
vergence thus  results  from  the  balance  of  opposite  divergences. 
Dearth,  or  scarcity,  on  the  one  hand,  and  over-supply,  or,  in  mercan- 
tile language,  glut,  on  the  other,  are  incident  to  all  commodities. 
In  the  first  case  the  commodity  affords  to  the  producers  or  sellers, 
while  the  deficiency  lasts,  an  unusually  high  rate  of  profit;  in  the 
second,  the  supply  being  in  excess  of  that  for  which  a  demand 
exists,  at  such  a  value  as  will  afford  the  ordinary  profit,  the  sellers 
must  be  content  with  less,  and  must,  in  extreme  cases,  submit  to  a 
loss. 

*'  Because  this  phenomenon  of  over-supply,  and  consequent  incon- 
venience or  loss  to  the  producer  or  dealer,  may  exist  in  the  case  of 
any  one  commodity  whatever,  many  persons,  including  some  dis- 
tinguished political  economists,  have  thought  that  it  may  exist  with 
regard  to  all  commodities ;  that  there  may  be  a  general  over-pro- 


INCREASE  OF  CAPITAL.  27 

duction  of  wealtli ;  a  supply  of  commodities  in  the  aggregate,  sur- 
passing the  demand;  and  a  consequent  depressed  condition  of  all 
classes  of  producers.  Against  this  doctrine,  of  which  Mr.  Malthus 
and  Dr.  Chalmers  in  this  country,  and  M.  de  Sismondi  on  the  Con- 
tinent, were  the  chief  apostles,  I  have  already  contended  in  the 
First  Book  ;  *  but  it  was  not  possible,  in  that  stage  of  our  inquiry, 
to  enter  into  a  complete  examination  of  an  error  (as  I  conceive)  es- 
sentially grounded  on  a  misunderstanding  of  the  phenomena  of  value 
and  price. 

"  The  doctrine  appears  to  me  to  involve  so  much  inconsistency 
in  its  very  conception,  that  I  feel  considerable  difficulty  in  giving 
any  statement  of  it  which  shall  be  at  once  clear,  and  satisfactory  to 
its  supporters.  They  agree  in  maintaining  that  there  may  be,  and 
sometimes  is,  an  excess  of  productions  in  general  beyond  the  de- 
mand for  them;  that  when  this  happens,  purchasers  can  not  be 
found  at  prices  which  will  repay  the  cost  of  production  with  a  profit ; 
that  there  ensues  a  general  depression  of  prices  or  values  (they 
are  seldom  accurate  in  discriminating  between  the  two),  so  that 
producers,  the  more  they  produce,  find  themselves  the  poorer,  in- 
stead of  richer ;  and  Dr.  Chalmers  accordingly  inculcates  on  capital- 
ists the  practice  of  a  moral  restraint  in  reference  to  the  pursuit  of 
gain ;  while  Sismondi  deprecates  machinery,  and  the  various  inven- 
tions which  increase  productive  power.  They  both  maintain  that 
accumulation  of  capital  may  proceed  too  fast,  not  merely  for  the 
moral  but  for  the  material  interests  of  those  who  produce  and  accu- 
mulate ;  and  they  enjoin  the  rich  to  guard  against  this  evil  by  an 
ample  unproductive  consumption. 

"  When  these  writers  speak  of  the  supply  of  commodities  as  out- 
running the  demand,  it  is  not  clear  which  of  the  two  elements  of 
demand  they  have  in  view — the  desire  to  possess,  or  the  means  of 
purchase ;  whether  their  meaning  is  that  there  are,  in  such  cases, 
more  consumable  products  in  existence  than  the  public  desires  to 
consume,  or  merely  more  than  it  is  able  to  pay  for.  In  this  uncer- 
tainty, it  is  necessary  to  examine  both  suppositions. 

"  First,  let  us  suppose  that  the  quantity  of  commodities  produced 
is  not  greater  than  the  community  would  be  glad  to  consume ;  is  it, 
in  that  case,  possible  that  there  should  be  a  deficiency  of  demand 

■a,  pp.  41-43. 


28  CAPITAL   AND  POPULATION. 

for  all  commodities,  for  want  of  the  means  of  payment?  Those  who 
think  so,  can  not  have  considered  what  it  is  which  constitutes  the 
means  of  payment  for  commodities.  It  is,  simply,  commodities 
Each  person's  means  of  paying  for  the  productions  of  other  people 
consists  of  tliose  which  he  himself  possesses.  All  sellers  are  inevita- 
bly, and  by  the  meaning  of  the  word,  buyers.  Could  we  suddenly 
double  the  productive  powers  of  the  country,  we  should  double  the 
supply  of  commodities  in  every  market ;  but  we  should,  by  the  same 
stroke,  double  the  purchasing  power.  Everybody  would  bring  a  doub- 
le demand  as  well  as  supply  ;  everybody  would  be  able  to  buy  twice 
as  much,  because  every  one  would  have  twice  as  much  to  offer  in  ex- 
change. It  is  probable,  indeed,  that  there  would  now  be  a  superfluity 
of  certain  things.  Although  the  community  would  willingly  double 
its  aggregate  consumption,  it  may  akeady  have  as  much  as  it  desires 
of  some  commodities,  and  it  may  prefer  to  do  more  than  double  its 
consumption  of  others,  or  to  exercise  its  increased  purchasing  power 
on  some  new  thing.  If  so,  the  supply  will  adapt  itself  accordingly, 
and  the  values  of  things  will  continue  to  conform  to  their  cost  of  pro- 
duction. At  any  rate,  it  is  a  sheer  absurdity  that  all  things  should 
fall  in  value,  and  that  all  producers  should,  in  consequence,  be  in- 
sufficiently remunerated.  If  values  remain  the  same,  what  becomes 
of  prices  is  immaterial,  since  the  remuneration  of  producers  does 
not  depend  on  how  much  money  but  on  how  much  of  consumable 
articles  they  obtain  for  their  goods.  Besides,  money  is  a  commodity ; 
and  if  all  commodities  are  supposed  to  be  doubled  in  quantity,  we 
must  suppose  money  to  be  doubled  too,  and  then  prices  would  no 
more  fall  than  values  would. 

"  A  general  over-supply,  or  excess  of  all  commodities  above  the 
demand,  so  far  as  demand  consists  in  means  of  payment,  is  thus 
shown  to  be  an  impossibility.  But  it  may,  perhaps,  be  supposed 
that  it  is  not  the  ability  to  purchase,  but  the  desire  to  possess,  that 
falls  short,  and  that  the  general  produce  of  industry  may  be  greater 
than  the  community  desires  to  consume — the  part,  at  least,  of  the 
community  which  has  an  equivalent  to  give.  It  is  evident  enough 
that  produce  makes  a  market  for  produce,  and  that  there  is  wealth 
in  the  country  with  which  to  purchase  all  the  wealth  in  the  coun- 
try ;  but  those  who  have  the  means  may  not  have  the  wants,  and 
those  who  have  the  wants  may  be  without  the  means.  A  portion, 
therefore,  of  the  commodities  produced  may  be  unable  to  find  a 


mOREASE   OF  CAPITAL.  29 

market,  from  the  absence  of  means  in  those  wlio  have  the  desire  to 
consume,  and  the  want  of  desire  in  those  who  have  the  means. 

"This  is  much  the  most  plausible  form  of  the  doctrine,  and  does 
not,  like  that  which  we  first  examined,  involve  a  contradiction. 
There  may  easily  be  a  greater  quantity  of  any  particular  commodity 
than  is  desired  by  those  who  have  the  ability  to  purchase,  and  it  is 
abstractedly  conceivable  that  this  might  be  the  case  with  all  com- 
modities. The  error  is  in  not  perceiving  that,  though  all  who  have 
an  equivalent  to  give  might  be  fully  provided  with  every  consum- 
able article  which  they  desire,  the  fact  that  they  go  on  adding  to 
the  production  proves  that  this  is  not  actually  the  case.  Assume 
the  most  favorable  hypothesis  for  the  purpose,  that  of  a  limited 
community,  every  member  of  which  possesses  as  much  of  necessa- 
ries and  of  all  known  luxuries  as  he  desires ;  and  since  it  is  not 
c(mceivable  that  persons  whose  wants  were  completely  satisfied 
would  labor  and  economize  to  obtain  what  they  did  not  desire, 
suppose  that  a  foreigner  arrives,  and  produces  an  additional  quan- 
tity of  something  of  which  there  was  already  enough.  Here,  it  will 
be  said,  is  over-production ;  true,  I  reply ;  over-production  of  that 
particular  article :  the  community  wanted  no  more  of  that,  but  it 
wanted  something.  The  old  inhabitants,  indeed,  wanted  nothing ; 
but  did  not  the  foreigner  himself  want  something?  When  he  pro- 
duced the  superfluous  article,  was  he  laboring  without  a  motive? 
He  has  produced,  but  the  wrong  thing  instead  of  the  right.  He 
wanted,  perhaps,  food,  and  has  produced  watches,  with  which 
everybody  was  sufficiently  supplied.  The  new-comer  brought  with 
him  into  the  country  a  demand  for  commodities  equal  to  all  that  he 
could  produce  by  his  industry,  and  it  was  his  business  to  see  that 
the  supply  he  brought  should  be  suitable  to  that  demand.  If  he 
could  not  produce  something  capable  of  exciting  a  new  want  or 
desire  in  the  community,  for  the  satisfaction  of  which  some  one 
would  grow  more  food  and  give  it  to  him  in  exchange,  he  had  the 
alternative  of  growing  food  for  himself;  either  on  fresh  land,  if 
there  was  any  unoccupied,  or  as  a  tenant,  or  partner,  or  servant,  of 
some  former  occupier,  willing  to  be  partially  relieved  from  labor. 
He  has  produced  a  thing  not  wanted,  instead  of  what  was  wanted ; 
and  he  himself,  perhaps,  is  not  the  kind  of  producer  who  is  wanted ; 
but  there  is  no  over-production;  production  is  not  excessive  but 
merely  ill-assorted.    We  saw  before  that  whoever  brings  additional 


30  CAPITAL  AND  POPULATION. 

commodities  to  the  market,  brings  an  additional  power  of  purchase ; 
we  now  see  that  he  brings  also  an  additional  desire  to  consume ; 
since,  if  he  had  not  that  desire,  he  would  not  have  troubled  himself 
to  produce.  Neither  of  the  elements  of  demand,  therefore,  can  be 
wanting  when  there  is  an  additional  supply ;  though  it  is  perfectly- 
possible  that  the  demand  may  be  for  one  thing,  and  the  supply  may 
unfortunately  consist  of  another. 

"Driven  to  his  last  retreat,  an  opponent  may  perhaps  allege 
that  there  are  persons  who  produce  and  accumulate  from  mere 
habit;  not  because  they  have  any  object  in  growing  richer,  or 
desire  to  add  in  any  respect  to  their  consumption,  but  from  vis 
inerticB.  They  continue  producing  because  the  machine  is  ready 
mounted,  and  save  and  reinvest  their  savings  because  they  have 
nothing  on  which  they  care  to  expend  them.  I  grant  that  this  is 
possible,  and  in  some  few  instances  probably  happens;  but  these  do 
not  in  the  smallest  degree  affect  our  conclusion.  For,  what  do  these 
persons  do  with  their  savings?  They  invest  them  productively ; * 
that  is,  expend  them  in  employing  labor.  In  other  words,  having  a 
purchasing  power  belonging  to  them,  more  than  they  know  what  to 
do  with,  they  make  over  the  surplus  of  it  for  the  general  benefit  of 
the  laboring  class.  Now,  will  that  class  also  not  know  what  to  do 
with  it  ?  Are  we  to  suppose  that  they  too  have  their  wants  per- 
fectly satisfied,  and  go  on  laboring  from  mere  habit?  Until  this  is 
the  case ;  until  the  working  classes  have  also  reached  the  point  of 
satiety — there  will  be  no  want  of  demand  for  the  produce  of  capital, 
however  rapidly  it  may  accumulate  ;  since,  if  there  is  nothing  else 
for  it  to  do,  it  can  always  find  employment  in  producing  the  neces- 
saries or  luxuries  of  the  laboring  class.  And  when  they  too  had  no 
further  desire  for  necessaries  or  luxuries,  they  would  take  the  benefit 
of  any  further  increase  of  wages  by  diminishing  their  work ;  so  that 
the  over-production,  which  then. for  the  first  time  would  be  possible 
in  idea,  could  not  even  then  take  place  in  fact,  for  want  of  laborers. 
Thus,  in  whatever  manner  the  question  is  looked  at,  even  though  we 
go  to  the  extreme  verge  of  possibihty  to  invent  a  supposition  favor- 
able to  it,  the  theory  of  general  over-production  implies  an  absurdity. 

*  That  is  just  what  they  do  not  do — they  add  them  to  dead  stock,  and 
keep  them  inactive  until  the  rate  of  profit  tempts  them  to  employ  them 
productively. 


INCREASE   OF  CAPITAL.  31 

"  What,  then,  is  it  by  which  men  who  have  reflected  much  on 
economical  phenomena,  and  have  even  contributed  to  throw  new 
light  upon  them  by  original  speculations,  have  been  led  to  embrace 
so  irrational  a  doctrine?  I  conceive  them  to  have  been  deceived  by 
a  mistaken  interpretation  of  certain  mercantile  facts.  They  imag- 
ined that  the  possibility  of  a  general  over-supply  of  commodities  was 
proved  by  experience.  They  believed  that  they  saw  this  phenome- 
non in  certain  conditions  of  the  markets,  the  true  explanation  of 
which  is  totally  different. 

"  I  have  already  described  the  state  of  the  markets  for  commodi- 
ties which  accompanies  what  is  termed  a  commercial  crisis.  At 
such  times  there  is  really  an  excess  of  all  commodities  above  the 
money-demand  ;  in  other  words,  there  is  an  under-supply  of  money. 
From  the  sudden  annihilation  of  a  great  mass  of  credit,  every  one 
dislikes  to  part  with  ready  money,  and  many  are  anxious  to  procure 
it  at  any  sacrifice.  Almost  everybody,  therefore,  is  a  seller,  and 
there  are  scarcely  any  buyers :  so  that  there  may  really  be,  though 
only  while  the  crisis  lasts,  an  extreme  depression  of  general  prices 
from  what  may  be  indiscriminately  called  a  glut  of  commodities  or 
a  dearth  of  money.  But  it  is  a  great  error  to  suppose,  with  Sis- 
mondi,  that  a  commercial  crisis  is  the  effect  of  a  general  excess  of 
production.  It  is  simply  the  consequence  of  an  excess  of  specula- 
tive purchases.  It  is  not  a  gradual  advent  of  low  prices,  but  a  sud- 
den recoil  from  prices  extravagantly  high  :  its  immediate  cause  is  a 
contraction  of  credit,  and  the  remedy  is  not  a  diminution  of  supply, 
but  the  restoration  of  confidence.  It  is  also  evident  that  this  tem- 
porary derangement  of  markets  is  an  evil  only  because  it  is  tempo- 
rary. The  fall  being  solely  of  money-prices,  if  prices  did  not  rise 
again  no  dealer  would  lose,  since  the  smaller  price  would  be  worth 
as  much  to  him  as  the  larger  price  was  before.  In  no  manner  does 
this  phenomenon  answer  to  the  description  which  these  celebrated 
economists  have  given  of  the  evil  of  over-production.  That  perma- 
nent decline  in  the  circumstances  of  producers,  for  want  of  markets, 
which  those  writers  contemplate,  is  a  conception  to  which  the  nat- 
ure of  a  commercial  crisis  gives  no  support. 

"  The  other  phenomenon  from  which  the  notion  of  a  general  ex- 
cess of  wealth  and  superfluity  of  accumulation  seems  to  derive  coun- 
tenance, is  one  of  a  more  permanent  nature,  namely,  the  fall  of 
profits  and  interest  which  naturally  takes  place  with  the  progress  of 


32  CAPITAL  AND  POPULATION. 

population  and  production.  The  cause  of  this  decline  of  profit  is  the 
increased  cost  of  maintaining  labor,  which  results  from  an  increase 
of  population  and  of  the  demand  for  food  outstripping  the  advance 
of  agricultural  improvement.  This  important  feature  in  the  eco- 
nomical progress  of  nations  will  receive  full  consideration  and  dis- 
cussion in  the  succeeding  book.  It  is  obviously  a  totally  different 
thing  from  a  want  of  market  for  commodities,  though  often  con- 
founded with  it  in  the  complaints  of  the  producing  and  trading 
classes.  The  true  interpretation  of  the  modern  or  present  state  of 
industrial  economy  is,  that  there  is  hardly  any  amount  of  business 
which  may  not  de  done  if  people  will  ie  content  to  do  it  on  small 
profits;  and  this  all  active  and  intelligent  persons  in  business  per- 
fectly well  know :  but  even  those  who  comply  with  the  necessities 
of  their  time,  grumble  at  what  they  comply  with,  and  wish  that 
there  were  less  capital ;  or,  as  they  express  it,  less  competition,  in 
order  that  there  might  be  greater  profits.  Low  profits,  however, 
are  a  different  thing  from  deficiency  of  demand,  and  the  production 
and  accumulations,  which  merely  reduce  profits,  can  not  be  called 
excess  of  supply  or  production.  What  the  phenomenon  really  is, 
and  its  effects  and  necessary  limits,  will  be  seen  when  we  treat  of 
that  express  subject. 

"I  know  not  of  any  economical  facts,  except  the  two  I  have 
specified,  which  can  have  given  occasion  to  the  opinion  that  a  gen- 
eral over-production  of  commodities  ever  presented  itself  in  actual 
experience.  I  am  convinced  that  there  is  no  fact  in  commercial 
affairs  which,  in  order  to  its  explanation,  stands  in  need  of  that 
chimerical  supposition. 

"The  point  is  fundamental;  any  difference  of  opinion  on  it  in- 
volves radically  different  conceptions  of  political  economy,  especially 
in  its  practical  aspect.  On  the  one  view,  we  have  only  to  consider 
how  a  sufficient  production  may  be  combined  with  the  best  possible 
distribution  ;  but,  on  the  other,  there  is  a  third  thing  to  be  consid- 
ered :  how  a  market  can  be  created  for  produce,  or  how  production 
can  be  limited  to  the  capabilities  of  the  market.  Besides,  a  theory 
so  essentially  self-contradictory  can  not  intrude  itself  without  carry- 
ing confusion  into  the  very  heart  of  the  subject,  and  making  it  im- 
possible even  to  conceive  with  any  distinctness  many  of  the  more 
complicated  economical  workings  of  society.  This  error  has  been, 
I  conceive,  fatal  to  the  systems,  as  systems,  of  the  three  distinguished 


INCREASE  OF  CAPITAL.  33 

economists  to  whom  I  have  referred — Malthus,  Chalmers,  and  Sis- 
mondi — all  of  whom  have  admirably  conceived  and  explained  several 
of  the  elementary  theorems  of  political  economy ;  but  this  fatal  mis- 
conception has  spread  itself,  like  a  veil,  between  them  and  the  more 
difficult  portions  of  the  subject,  not  suffering  one  ray  of  light  to 
penetrate.  Still  more  is  this  same  confused  idea  constantly  crossing 
and  bewildering  the  speculations  of  minds  inferior  to  theirs.  It  is 
bnt  justice  to  two  eminent  names,  to  call  attention  to  the  fact  that 
the  merit  of  having  placed  this  most  important  point  in  its  true 
light  belongs  principally,  on  the  Continent,  to  the  judicious  J.  B. 
Say,  and  in  this  country  to  Mr.  Mill,  who  (besides  the  conclusive 
exposition  which  he  gave  of  the  subject  in  his  'Elements  of  Polit- 
ical Economy ')  had  set  forth  the  correct  doctrine  with  great  force 
and  clearness  in  an  early  pamphlet,  called  forth  by  a  temporary  con- 
troversy, and  entitled  'Commerce  Defended';  the  first  of  his  writ- 
ings which  attained  any  celebrity,  and  which  he  prized  more  as 
having  been  his  first  introduction  to  the  friendship  of  David  Ricardo, 
the  most  valued  and  most  intimate  friendship  of  his  life." 

It  is,  of  course,  needless  to  point  out  that  here  again 
Mill  uses  capital  in  the  sense  of  Ricardo.  It  will  also  be 
noticed  that  over-accumulation  and  over-production  are 
not  at  all  distinguished,  and  that  arguments  valid  against 
the  latter  are  taken  for  granted  as  valid  against  the  for- 
mer also. 

As  to  the  argument,  it  is,  of  course,  true  v^hen  money 
and  labor  are  considered  as  commodities ;  but  what  the 
advocates  of  over-accumulation  assert,  and  what  Mill  is 
really  interested  in  denying,  is  only  that  the  amount  of 
all  material  commodities  can  be  and  sometimes  is  excess- 
ive. That  this  is  what  Mill  opposes  is  evident  from  sec- 
tion 4,  in  which  he  refuses  to  accept  over-accumulation 
as  an  explanation  of  panics.  It  would  be  too  absurd  to 
suppose  that  any  one  claimed  that  panics  were  due  to  an 
excess  of  labor  as  well  as  of  material  commodities ;  and, 
therefore,  MiU's  meaning  must  be  that  the  excess  of 


34  CAPITAL  AND  POPULATION. 

material  commodities  has  no  influence  in  leading  to  in- 
dustrial stagnation.  This  is  the  objective  point  of  his 
whole  argument,  and  all  his  disciples,  notably  Bonamj 
Price  and  Fawcett,  have  so  understood  and  accepted  him, 
and  in  the  most  unequivocal  terms  have  attributed  the 
lessened  production  of  such  periods  to  the  general  pov- 
erty resulting  from  the  extravagance  of  preceding  periods 
of  high  profits  and  large  production. 

INow,  it  is  evident  that  the  whole  argument,  contained 
in  the  'quotation  I  have  last  made,  is  inapplicable  to  the 
conclusion  thus  drawn.  Fortunately,  there  is  a  test  which 
can  not  but  be  accepted,  as  decisive  between  the  view  of 
Mill's  disciples  and  my  own, by  any  who  doubt.  To  this 
test  I  am  anxious  to  draw  the  closest  attention,  as  no  one 
who  appreciates  its  significance  can,  I  think,  fail  to  agree 
with  me.  If  any  particular  panic  and  the  period  of 
industrial  idleness  which  follows  it  are  caused  'by  the 
poverty  of  the  community — i.  e.,  hy  the  amount  of  mate- 
rial commodities  heing  less  than  usual — the  rate  of  profit 
during  such  panic  and  period  will  he  high  {not  the  rate 
of  interest^  which  is  then  liable  to  violent  fluctuations  and 
does  not  at  all  indicate  the  rate  of  profit) ;  for  what  capi- 
tal is  left  in  the  community  can  not  fail  of  finding  profit- 
aUe  employment.  If  on  the  contrary^  the  rate  of  profit 
is  low^  it  can  he  due  to  no  other  cause  than  that  capital 
hears  a  larger  proportion  than  usual  to  population. 

In  Book  II,  chapter  viii,  section  3,  Mill,  speaking  of 
prices,  says : 

"  It  is  to  be  remarked  that  this  ratio  would  be  precisely  that  in 
which  the  quantity  of  money  had  been  increased.  If  the  whole 
money  in  circulation  was  doubled,  prices  would  be  doubled.  If  it 
was  only  increased  one  fourth,  prices  would  rise  one  fourth.  There 
would  be  one  fourth  more  money,  all  of  which  would  be  used  to 


INOEEASE  OF  CAPITAL.  35 

purchase  goods  of  some  description.  When  there  had  been  time  for 
tbe  increased  supply  of  money  to  reach  all  markets,  or  (according  to 
the  conventional  metaphor)  to  permeate  all  the  channels  of  circula- 
tion, all  prices  would  have  risen  one  fourth.  But  the  general  rise 
of  prices  is  independent  of  this  diffusing  and  equalizing  process. 
Even  if  some  prices  were  raised  more,  and  others  less,  the  average 
rise  would  be  one  fourth.  This  is  a  necessary  consequence  of  the 
fact  that  a  fourth  more  money  would  have  been  given  for  only  the 
same  quantity  of  goods.  General  prices,  therefore,  would  in  any 
case  be  a  fourth  higher. 

*'  The  very  same  effect  would  be  produced  on  prices  if  we  sup- 
pose the  goods  diminished,  instead  of  the  money  increased ;  and  the 
contrary  effect  if  the  goods  were  increased,  or  the  money  dimin- 
ished. If  there  were  less  money  in  the  hands  of  the  community, 
and  the  same  amount  of  goods  to  be  sold,  less  money  altogether 
would  be  given  for  them,  and  they  would  be  sold  at  lower  prices ; 
lower,  too,  in  the  precise  ratio  in  which  the  money  was  diminished. 
So  that  the  value  of  money,  other  things  being  the  same,  varies  in- 
versely as  its  quantity;  every  increase  of  quantity  lowering  the 
value,  and  every  diminution  raising  it,  in  a  ratio  exactly  equiva- 
lent. 

"  This,  it  must  be  observed,  is  a  property  peculiar  to  money.  We 
did  not  find  it  to  be  true  of  commodities  generally  that  every  dimi- 
nution of  supply  raised  the  value  exactly  in  proportion  to  the  defi- 
ciency, or  that  every  increase  lowered  it  in  the  precise  ratio  of  the 
excess.  Some  things  are  usually  affected  in  a  greater  ratio  than 
that  of  the  excess  of  deficiency,  others  usually  in  a  less ;  because,  in 
ordinary  cases  of  demand,  the  desire,  being  for  the  thing  itself,  may 
be  stronger  or  weaker;  and  the  amount  of  what  people  are  willing 
to  expend  on  it,  being  in  any  case  a  limited  quantity,  maybe  affected 
in  very  unequal  degrees  by  difiiculty  or  facility  of  attainment.  But 
in  the  case  of  money,  which  is  desired  as  the  means  of  universal 
purchase,  the  demand  consists  of  everything  which  people  have  to 
sell ;  and  the  only  limit  to  what  they  are  willing  to  give,  is  the 
limit  set  by  their  having  nothing  more  to  offer.  The  whole  of  the 
goods  being  in  any  case  exchanged  for  the  whole  of  the  money  which 
comes  into  the  market  to  be  laid  out,  they  will  sell  for  less  or  more 
of  it,  exactly  according  as  less  or  more  is  bought. 

"From  what  precedes,  it  might  for  a  moment  be  supposed  that 


36  CAPITAL  AND  POPULATION. 

all  the  goods  on  sale  in  a  country  at  any  one  time,  are  exchanged 
for  all  the  money  existing  and  in  circulation  at  that  same  time ;  or, 
in  other  words,  that  there  is  always  in  circulation  in  a  country  a 
quantity  of  money  equal  in  value  to  the  whole  of  the  goods  then 
and  there  on  sale.  But  this  would  be  a  complete  misapprehension. 
The  money  laid  out  is  equal  in  value  to  the  goods  it  purchases;  but 
the  quantity  of  money  laid  out  is  not  the  same  thing  with  the  quan- 
tity in  circulation.  As  the  money  passes  from  hand  to  hand,  the 
same  piece  of  money  is  laid  out  many  times,  before  all  the  things  on 
sale  at  one  time  are  purchased  and  finally  removed  from  the  market ; 
and  each  pound  or  dollar  must  be  counted  for  as  many  pounds  or 
dollars  as  the  number  of  times  it  changes  hands,  in  order  to  effect 
this  object." 

This  passage  supplies  another  test  of  whether  any  par- 
ticular period  of  activity  or  stagnation  is  due  to  a  large 
or  small  amount  of  disposable  wealth.  If,  for  instance, 
low  prices  generally  prevail  during  a  period  of  inactivity, 
it  shows  that  the  stock  of  commodities  must  be  large  as 
compared  with  the  stock  of  money.  If  the  industrial  in- 
activity is  due  to  a  scarcity  of  circulating  capital,  using 
the  term  according  to  Mill's  definition,  prices  should  be 
high,  unless  there  has  been  an  enormous  exportation  of 
gold ;  but  the  movement  of  gold — except  when  driven  out 
by  an  irredeemable  currency,  which  then  becomes  money, 
and,  as  far  as  prices  are  affected,  supplies  its  function — is 
always  too  insignificant  to  account  for  the  variations  in 
general  prices  which  occur,  as  will  be  evident  when  we 
reflect  that  the  rise  or  fall  must  always  be  mathematically 
proportional ;  that  is,  if  the  stock  of  commodities  remains 
the  same,  one  quarter  of  the  gold  of  the  country  must  be 
exported  to  account  for  a  fall  in  general  prices  of  twenty- 
five  per  cent,  and,  if  the  stock  of  commodities  has  also 
diminished,  it  would  only  account  for  a  fall  proportion- 
ally less  by  the  percentage  of  such  diminution.    We  are 


INCREASE  OF  CAPITAL.  37 

forced,  therefore,  to  account  for  such  falls  in  general 
prices  by  supposing  that  they  are  due  to  an  actual  in- 
crease of  material  commodities.  As  prices  are  always 
low  during  hard,  and  high  during  flush  times,  it  neces- 
sarily follows  that  it  is  during  the  former  that  the  amount 
of  material  wealth  is  greatest. 

We  see,  therefore,  that  low  prices  prevailing  during 
any  period  of  stagnation  are  an  indication  that  the  de- 
pression is  not  caused  by  poverty,  but  by  excessive  accu- 
mulations ;  but  they  are  not  as  good  a  test  as  that  of  low 
profits.  If  any  improvement  be  made,  such,  for  instance, 
as  the  establishment  of  a  clearing-house,  other  things  re- 
maining the  same,  a  certain  amount  of  gold  is  not  needed 
and  must  be  exported.  This  can  only  be  effected  through 
a  rise  in  prices.  Kapidity  of  circulation  tends  to  raise 
prices,  and  sluggishness  to  depress  them.  During  good 
times,  therefore,  the  greater  efficiency  of  money  tends  to 
raise  prices  beyond  the  point  they  would  otherwise  attain, 
and  during  bad  times  its  greater  sluggishness  correspond- 
ingly depresses  them.  This  produces  the  same  effect 
upon  prices  as  the  proportion  between  money  and  other 
commodities,  and  low  prices  are  not,  therefore,  as  accurate 
a  test  as  low  profits  of  the  true  cause  of  the  industrial  in- 
activity, but  they  possess  the  advantage  of  being  more 
readily  ascertained  and  compared. 

Mill  admits  that  any  one  commodity  may  be  in  ex- 
cess. He  must  therefore  also  grant  that  all  but  one  can 
be  so.  If  that  one  exception  is  labor,  his  opponents  have 
granted  to  them  all  they  claim  and  he  denies.    Mill  truly 


"  The  point  is  fundamental ;  any  difference  of  opinion  on  it  in- 
volves radically  different  conceptions  of  political  econoray,  especially 
in  its  practical  aspect." 


38  CAPITAL  AND  POPULATION 

But  he  is  at  sea  when  he  goes  on  to  assert : 

*'  On  the  one  view,  we  have  only  to  consider  how  a  sufficient 
production  raaj  be  combined  with  the  best  possible  distribution ; 
but,  on  the  other,  there  is  a  third  thing  to  be  considered — how  a 
market  can  be  created  for  produce,  or  how  a  production  can  be  lim- 
ited to  the  capabilities  of  the  market." 

The  practical  application  of  the  theory  of  over-accu- 
mulation involves  no  such  considerations  as  he  here  sup- 
poses. It  indeed  concerns  itself  with  limiting  the  ten- 
dency to  accumulate,  but  it  effects  by  this  a  greater  not  a 
lessened  production,  and  all  it  does  to  secure  a  "  market " 
is  to  endeavor  to  sustain  a  rate  of  profit  under  which  pro- 
duction can  go  on  most  readily. 

As  to  Say's  famous  argument,  with  which  I  am  in  en- 
tire accord,  it  is  enough  to  call  attention  to  the  fact  that, 
though  commodities,  no  matter  how  great  their  quantity, 
will  exchange  for  each  other  freely,  if  they  are  produced 
in  such  proportions  as  to  satisfy  the  desires  of  those  who 
exert  an  efficient  demand,  such  proportions  are  ipso  facto 
not  sustained  when  a  certain  and  natural  proportion  be- 
tween the  demand  for  productive  and  for  unproductive 
consumption  is  not  maintained.  My  whole  position  is 
granted  by  Mill  when  he  says,  "  The  true  interpretation  of 
the  modern  or  present  state  of  industrial  economy  is,  that 
there  is  hardly  any  amount  of  business  which  may  not  be 
done,  if  people  will  be  content  to  do  it  on  small  profits." 
Yery  well,  then.  Let  us  attribute  our  periods  of  indus- 
trial inactivity  to  low  profits.  Nothing  is  more  certain 
than  that  people  will  cease  pi^oducing  as  profits  decline, 
and  that  they  must  so  decline  when  capital  increases  faster 
than  population. 

I  complain  of  Mill,  not  only  that  he  is  confused  in  his 
theoretical  conceptions  as  to  capital  and  accumulation,  but 


INCREASE  OF  CAPITAL.  39 

that  he  entirely  failed  to  appreciate  their  practical  bear- 
ing upon  production,  as  is  evidenced  by  his  attempt  to 
explain  panics  as  due  alone  to  the  action  of  credit,  and 
by  his  constant  exhortations  to  abstinence. 

Let  us  now  turn  to  Kicardo,  who,  in  his  chapter  on 
"  Taxes  on  Kaw  Produce,"  page  95,  says : 

"An  accumulation  of  capital  uaturally  produces  an  increased 
competition  amoDg  the  employers  of  labor,  and  a  consequent  rise  in 
its  price." 

If  in  this  sentence  he  uses  the  term  "  capital "  accord- 
ing to  his  own  definition,  he  is  not  entitled  to  use  the  term 
"  accumulation  of  capital "  at  all,  as  applied  to  circulating 
capital,  which  alone  affects  the  competition  for  labor. 
Capital,  according  to  him,  being  merely  the  wages-fund, 
does  not  become  capital  until  it  is  expended,  and  is  phys- 
ically incapable  of  being  accumulated  ;  or,  if  we  suppose 
him  to  include  under  capital  funds  set  apart  for  the  main- 
tenance of  the  laborer  until  the  product  he  is  then  en- 
gaged upon  is  brought  to  market,  there  can  be  no  increase 
of  the  wages-fund  beyond  that  amount.  Anything  set 
apart  for  the  employment  of  labor,  beyond  that  at  the 
time  employed,  is  not  capital  in  his  sense,  but  in  Mill's. 
But  it  is  only  such  increase  of  capital  that  can  affect  the 
competition  for  labor.  The  demand  for  and  supply  of 
labor  do  not  at  all  depend  upon  capital,  in  his  sense  of 
the  term.  The  wages-fund  is  the  effect  and  not  the  cause 
of  the  demand  for  labor.  The  word,  therefore,  must  be 
used  in  the  sense  in  which  Mill  defines  the  term,  and  in 
that  sense  his  assertion  is  inaccurate. 

Population  being  stationary,  an  increase  of  capital 
beyond  the  limits  I  have  pointed  out  decreases  the  de- 
mand for  labor.    The  demand  for  labor  must,  then,  depend 


40  CAPITAL  AND  POPULATIO^T. 

upon  something  else.  The  proportion  that  determines 
the  demand  is  not  between  commodities  already  in  exist- 
ence and  the  number  of  laborers,  but  between  the  com- 
modities needed,  or  supposed  to  be  needed,  sufficiently  to 
sell  for  a  profit,  and  the  number  of  laborers.  It  is  not 
between  the  accumulations  of  past  production  and  labor, 
but  between  the  amount  of  future  production  and  labor. 
But  the  amount  of  future  production  supposed  to  be  need- 
ed will  be  least  when  things  already  in  existence  are  most 
plenty,  and  greatest  when  they  are  scarce,  and  the  direct 
opposite  of  Kicardo's  assertion  as  to  the  demand  for  labor 
is  what  really  follows.  As  to  its  price,  he  is  right  if  he 
means  relative  price,  but  not  otherwise. 

As  a  rule,  Kicardo  is  more  faithful  to  his  definition 
than  Mill  is  to  his.  Accepting  his  faulty  definition,  his 
conclusions  are  accurately  true.  Mill,  on  the  other  hand, 
persistently  asserts  Ricardo's  conclusions  as  also  true  of 
capital  as  he  defines  it,  and  is,  therefore,  much  more  at 
fault  than  his  predecessor.  Sometimes,  however,  as  in 
our  quotation,  Ricardo  himself  applies  conclusions  only 
true  of  the  wages-fund  to  capital  in  its  broader  and  truer 
signification. 

Although  not  strictly  in  the  line  of  our  argument,  it 
may  be  well  here  to  notice  the  principle  enunciated  by 
Mill,  that  the  demand  for  commodities  is  not  a  demand 
for  labor,  as  it  is  connected  with  our  subject,  and  its  con- 
sideration will  throw  additional  light  on  the  discussion. 
This  proposition  has  attained  the  place  of  the  pons  asi- 
norum  of  political  economy.  It  remains  an  insoluble 
puzzle  to  most  minds,  as,  although  they  perceive  Mill's 
reasoning  to  be  irrefutable,  they  can  not  get  rid  of  the 
conviction  tlmt  it  really  makes  no  difference,  in  the  amount 
of  labor  that  finds  employment,  whether  it  is  employed 


mCREASE  OF  CAPITAL.  41 

directly  by  themselves  or  by  the  funds  that  they  turn 
over  to  others. 

The  proposition  is  enunciated  in  the  following  pas- 
sage, Book  I,  chapter  v,  section  9,  of  Mill's  work: 

"We  now  pass  to  a  fourth  fandamental  theorem  respecting 
capital,  which  is,  perhaps,  oftener  overlooked  or  misconceived  than 
even  any  of  the  foregoing.  What  supports  and  employs  productive 
lahor  is  the  capital  expended  in  setting  it  to  work,  and  not  the  de- 
mand of  purchasers  for  the  produce  of  the  labor  when  completed. 
Demand  for  commodities  is  not  demand  for  labor.  The  demand  for 
commodities  determines  in  what  particular  branch  of  production 
the  labor  and  capital  shall  be  employed ;  it  determines  the  direc- 
tion of  the  labor,  but  not  the  more  or  less  of  the  labor  itself,  or  of 
the  maintenance  or  payment  of  the  labor.  These  depend  on  the 
amount  of  the  capital  or  other  funds  directly  devoted  to  the  suste- 
nance and  remuneration  of  labor. 

"  Suppose,  for  instance,  that  there  is  a  demand  for  velvet ;  a 
fund  ready  to  be  laid  out  in  buying  velvet,  but  no  capital  to  estab- 
lish the  manufacture.  It  is  of  no  consequence  how  great  the  de- 
mand may  be,  unless  capital  is  attracted  into  the  occupation,  there 
will  be  no  velvet  made,  and  consequently  none  bought ;  unless,  in- 
deed, the  desire  of  the  intending  purchaser  for  it  is  so  strong  that 
he  employs  part  of  the  price  he  would  have  paid  for  it  in  making 
advances  to  work-people,  that  they  may  employ  themselves  in  mak- 
ing velvet ;  that  is,  unless  he  converts  part  of  his  income  into  capi- 
tal, and  invest  that  capital  in  the  manufacture.  Let  us  now  reverse 
the  hypothesis,  and  suppose  that  there  is  plenty  of  capital  ready  for 
making  velvet,  but  no  demand.  Velvet  will  not  be  made ;  but  there 
is  no  particular  preference  on  the  part  of  capital  for  making  velvet. 
Manufacturers  and  their  laborers  do  not  produce  for  the  pleasure  of 
their  customers,  but  for  the  supply  of  their  own  wants,  and  having 
still  the  capital  and  the  labor  which  are  the  essentials  of  production, 
they  can  either  produce  something  else  which  is  in  demand,  or,  if 
there  be  no  other  demand,  they  themselves  have  one,  and  can  pro- 
duce the  things  which  they  want  for  their  own  consumption.  So 
that  the  employment  afforded  to  labor  does  not  depend  on  the  pur- 
chasers, but  on  the  capital.     I  am,  of  course,  not  taking  into  con- 


42  CAPITAL  AND  POPULATION. 

sideration  the  effects  of  a  sudden  change.  If  the  demand  ceases  un- 
expectedly after  the  commodity  to  supply  it  is  already  produced,  this 
introduces  a  different  element  into  the  question  ;  the  capital  has  actu- 
ally been  consumed  in  producing  something  which  nobody  wants  or 
uses,  and  it  has  therefore  perished,  and  the  employment  which  it 
gave  to  labor  is  at  an  end,  not  because  there  is  no  longer  a  demand, 
but  because  there  is  no  longer  a  capital.  This  case,  therefore,  does 
not  test  the  principle.  The  proper  test  is  to  suppose  that  the  change 
is  gradual  and  foreseen,  and  is  attended  with  no  waste  of  capital, 
the  manufacture  being  discontinued  by  merely  not  replacing  the 
machinery  as  it  wears  out,  and  not  reinvesting  the  money  as  it 
comes  in  from  the  sale  of  the  produce.  The  capital  is  thus  ready  for 
a  new  employment,  in  which  it  will  maintain  as  much  labor  as  before. 
The  manufacturer  and  his  work-people  lose  the  benefit  of  the  skill 
and  knowledge  which  they  had  acquired  in  the  particular  business, 
and  which  can  only  be  partially  of  use  to  them  in  any  other ;  and 
that  is  the  amount  of  loss  to  the  community  by  the  change.  But  the 
laborers  can  still  work,  and  the  capital  which  previously  employed 
them  will,  either  in  the  same  hands  or  by  being  lent  to  others,  em- 
ploy either  those  laborers  or  an  equivalent  number  in  some  other 
occupation. 

''  This  theorem — that  to  purchase  produce  is  not  to  employ  labor ; 
that  the  demand  for  labor  is  constituted  by  the  wages  which  pre- 
cede the  production,  and  not  by  the  demand  which  may  exist  for 
the  commodities  resulting  from  the  production — is  a  proposition 
which  greatly  needs  all  the  illustration  it  can  receive.  It  is,  to  com- 
mon apprehension,  a  paradox ;  and  even  among  political  economists 
of  reputation,  I  can  hardly  point  to  any,  except  Mr.  Eicardo  and  M. 
Say,  who  have  kept  it  constantly  and  steadily  in  view.  Almost  all 
others  occasionally  express  themselves  as  if  a  person  who  buys 
commodities,  the  produce  of  labor,  was  an  employer  of  labor,  and 
created  a  demand  for  it  as  really,  and  in  the  same  sense,  as  if  he 
bought  the  labor  itself  directly  by  the  payment  of  wages.  It  is  no 
wonder  that  political  economy  advances  slowly  when  such  a  ques- 
tion as  this  still  remains  open  at  its  very  threshold.  I  apprehend 
that  if  by  demand  for  labor  be  meant  the  demand  by  which  wages 
are  raised,  or  the  number  of  laborers  in  employment  increased,  de- 
mand for  commodities  does  not  constitute  demand  for  labor.  I 
conceive  that  a  person  who  buys  commodities  and  consumes  them 


INCREASE  OF  CAPITAL.  43 

himself  does  no  good  to  the  laboring  classes ;  and  that  it  is  only  by 
what  he  abstains  from  consuming  and  expends  in  direct  payments  to 
laborers  in  exchange  for  labor,  that  he  benefits  the  laboring  classes 
or  adds  anything  to  the  amount  of  their  employment. 

"For  the  better  illustration  of  the  principle,  let  us  put  the  fol- 
lowing case :  A  consumer  may  expend  his  income  either  in  buying 
services  or  commodities.  He  may  employ  part  of  it  in  hiring  jour- 
neymen brick -layers  to  build  a  house,  or  excavators  to  dig  artificial 
lakes,  or  laborers  to  make  plantations  and  lay  out  pleasure-grounds ; 
or,  instead  of  this,  he  may  expend  the  same  value  in  buying  velvet 
and  laces.  The  question  is,  whether  the  difference  between  these 
two  modes  of  expending  his  income  affects  the  interest  of  the  labor- 
ing classes.  It  is  plain  that  in  the  first  of  the  two  cases  he  employs 
laborers  who  will  be  out  of  employment,  or,  at  least,  out  of  that 
employment  in  the  opposite  case.  But  those  from  whom  I  differ 
say  that  this  is  of  no  consequence,  because  in  buying  velvet  and  lace 
he  equally  employs  laborers,  namely,  those  who  make  the  velvet 
and  lace.  I  contend,  however,  that  in  this  last  case  he  does  not 
employ  laborers ;  but  merely  decides  in  what  kind  of  work  some 
other  person  shall  employ  them.  The  consumer  does  not,  with  his 
own  funds,  pay  to  the  weavers  and  lace-makers  their  day's  wages. 
He  buys  the  finished  commodity,  which  has  been  produced  by  labor 
and  capital,  the  labor  not  being  paid  nor  the  capital  furnished  by  him, 
but  by  the  manufacturer.  Suppose  that  he  had  been  in  the  habit  of 
expending  this  portion  of  his  income  in  hiring  journeymen  brick- 
layers, who  laid  out  the  amount  of  their  wages  in  food  and  clothing, 
which  were  also  produced  by  labor  and  capital.  He,  however,  deter- 
mined to  prefer  velvet,  for  which  he  thus  creates  an  extra  demand. 
This  demand  can  not  be  satisfied  without  an  extra  capital ;  where, 
then,  is  the  capital  to  come  from  ?  There  is  nothing  in  the  consumer's 
change  of  purpose  which  makes  the  capital  of  the  country  greater 
than  it  otherwise  was.  It  appears,  then,  that  the  increased  demand 
for  velvet  could  not  for  the  present  be  supplied  were  it  not  that  the 
very  circumstance  which  gave  rise  to  it  has  set  at  liberty  a  capital  of 
the  exact  amount  required.  The  very  sum  which  the  consumer 
now  employs  in  buying  velvet,  formerly  passed  into  the  hands  of 
journeymen  brick-layers,  who  expended  it  in  food  and  necessaries, 
which  they  now  either  go  without,  or  squeeze  by  their  competition 
from  the  shares  of  other  laborers.    The  labor  and  capital,  therefore, 


44  CAPITAL  AND  POPULATION. 

which  formerly  produced  necessaries  for  the  use  of  these  brick-layers 
are  deprived  of  their  market,  and  must  look  out  for  other  employ- 
ment ;  and  they  find  it  in  making  velvet  for  the  new  demand.  I  do 
not  mean  that  the  very  same  labor  and  capital  which  produced  the 
necessaries  turn  themselves  to  producing  the  velvet ;  but,  in  some 
one  or  other  of  a  hundred  modes,  they  take  the  place  of  that  which 
does.  There  was  capital  in  existence  to  do  one  of  two  things — to 
make  the  velvet,  or  to  produce  necessaries  for  the  journeymen  brick- 
layers; but  not  to  do  both.  It  was  at  the  option  of  the  customer 
which  of  the  two  should  happen;  and  if  he  chooses  the  velvet, 
they  go  without  the  necessaries. 

"  For  further  illustration,  let  us  suppose  the  same  case  reversed. 
The  consumer  has  been  accustomed  to  buy  velvet,  but  resolves  to 
discontinue  that  expense,  and  to  employ  the  same  annual  sum  in 
hiring  brick-layers.  If  the  common  opinion  be  correct,  this  change 
in  the  mode  of  his  expenditure  gives  no  additional  employment  to 
labor,  but  only  transfers  employment  from  velvet-makers  to  brick- 
layers. On  closer  inspection,  however,  it  will  be  seen  that  there  is 
an  increase  of  the  total  sum  applied  to  the  remuneration  of  labor. 
The  velvet  manufacturer,  supposing  him  aware  of  the  diminished 
demand  for  his  commodity,  diminishes  the  production  and  sets  at 
liberty  a  corresponding  portion  of  the  capital  employed  in  the  manu- 
facture. This  capital,  thus  withdrawn  from  the  maintenance  of 
velvet-makers,  is  not  the  same  fund  with  that  which  the  customer 
employs  in  maintaining  brick-layers ;  it  is  a  second  fund.  There 
are,  therefore,  two  funds  to  be  employed  in  the  maintenance  and 
remuneration  of  labor,  where  before  there  was  only  one.  There  is 
not  a  transfer  of  employment  from  velvet-makers  to  brick-layers ; 
there  is  a  new  employment  created  for  brick-layers,  and  a  transfer 
of  employment  from  velvet-makers  to  some  other  laborers,  most 
probably  those  who  produce  the  food  and  other  things  which  the 
brick-layers  consume. 

*'  In  answer  to  this  it  is  said  that  the  money  laid  out  in  buying 
velvet  is  not  capital,  it  replaces  capital ;  that,  though  it  does  not 
create  a  new  demand  for  labor,  it  is  the  necessary  means  of  en- 
abling the  existing  demands  to  be  kept  up.  The  funds  (it  may  be 
said)  of  the  manufacturer,  while  locked  up  in  velvet,  can  not  be 
directly  applied  to  the  maintenance  of  labor ;  they  do.  not  begin  to 
constitute  a  demand  for  labor  until  the  velvet  is  sold,  and  the  capital 


INOEEASE  OF  CAPITAL.  45 

which  raade  it  replaced  from  the  outlay  of  the  purchaser;  and 
thus,  it  may  be  said,  the  velvet-maker  and  the  velvet-buyer  have 
not  two  capitals,  but  only  one  capital  between  them,  which  by  the 
act  of  purchase  the  buyer  transfers  to  the  manufacturer ;  and  if, 
instead  of  buying  velvet  he  buys  labor,  he  simply  transfers  this 
capital  elsewhere,  extinguishing  as  much  demand  for  labor  in  one 
quarter  as  he  creates  in  another. 

"The  premises  of  this  argument  are  not  denied.  To  set  free  a 
capital  which  would  otherwise  be  locked  up  in  a  form  useless  for 
the  support  of  labor  is,  no  doubt,  the  same  thing  to  the  interests  of 
laborers  as  the  creation  of  a  new  capital.  It  is  perfectly  true  that 
if  I  expend  £1,000  in  buying  velvet,  I  enable  the  manufacturer  to 
employ  £1,000  in  the  maintenance  of  labor,  which  could  not  have 
been  so  employed  while  the  velvet  remained  unsold  ;  and  if  it  would 
have  remained  unsold  for  ever  unless  I  bought  it,  then  by  changing 
my  purpose  and  hiring  brick-layers  instead,  I  undoubtedly  create  no 
new  demand  for  labor,  for  while  I  employ  £1,000  in  hiring  labor  on 
the  one  hand,  I  annihilate  for  ever  £1,000  of  the  velvet-maker's 
capital  on  the  other.  But  this  is  confounding  the  effects  arising 
from  the  mere  suddenness  of  a  change  with  the  effects  of  the  change 
itself.  If,  when  the  buyer  ceased  to  purchase,  the  capital  employed 
in  making  velvet  for  his  use  necessarily  perished,  then  his  expend- 
ing the  same  amount  in  hiring  brick- layers  would  be  no  creation,  but 
merely  a  transfer  of  employment.  The  increased  employment  which 
I  contend  is  given  to  labor,  would  not  be  given  unless  the  capital 
of  the  velvet-maker  could  be  liberated,  and  would  not  be  given 
until  it  was  liberated.  But  every  one  knows  that  the  capital  in- 
vested in  an  employment  can  be  withdrawn  from  it,  if  sufficient 
time  be  allowed.  If  the  velvet-maker  had  previous  notice,  by  not 
receiving  the  usual  order,  he  will  have  produced  £1,000  less  velvet, 
and  an  equivalent  portion  of  his  capital  will  have  been  already  set 
free.  If  he  had  no  previous  notice,  and  the  article  consequently 
remains  on  his  hands',  the  increase  of  his  stock  will  induce  him  next 
year  to  suspend  or  diminish  his  production  until  the  surplus  is  car- 
ried off.  When  this  process  is  complete,  the  manufacturer  will  find 
himself  as  rich  as  before,  with  undiminished  power  of  employing 
labor  in  general,  though  a  portion  of  his  capital  will  now  be  em- 
ployed in  maintaining  some  other  kind  of  it.  Until  this  adjustment 
has  taken  place,  the  demand  for  labor  will  be  merely  changed,  not 


46  CAPITAL  AND  POPULATION. 

increased  ;  but,  as  soon  as  it  has  taken  place,  the  demand  for  labor 
is  increased.  Where  there  was  formerly  only  capital  employed  in 
maintaining  weavers  to  make  £1,000  worth  of  velvet,  there  is  now 
that  same  capital  employed  in  making  something  else,  and  £1,000 
distributed  among  brick-layers  besides.  There  are  now  two  capitals 
employed  in  remunerating  two  sets  of  laborers,  while  before  one  of 
those  capitals,  that  of  the  customer,  only  served  as  a  wheel  in  the 
machinery  by  which  the  other  capital,  that  of  the  manufacturer, 
carried  on  its  employment  of  labor  from  year  to  year. 

"  The  proposition  for  which  I  am  contending  is  in  reality  equiva- 
lent to  the  following,  which  to  some  minds  will  appear  a  truism, 
though  to  others  it  is  a  paradox :  that  a  person  does  good  to  labor- 
ers, not  by  what  he  consumes  on  himself,  but  solely  by  what  he 
does  not  so  consume.  If,  instead  of  laying  out  £100  in  wine  or  silk, 
I  expend  it  in  wages,  the  demand  for  commodities  is  precisely  equal 
in  both  cases ;  in  the  one  it  is  the  demand  for  £100  worth  of  wine 
or  silk ;  in  the  other,  for  the  same  value  of  bread,  beer,  laborers' 
clothing,  fuel,  and  indulgences :  but  the  laborers  of  the  community 
have  in  the  latter  case  the  value  of  £100  more  of  the  produce  of 
the  community  distributed  among  them.  I  have  consumed  that 
much  less,  and  made  over  my  consuming  power  to  them.  If  it  were 
not  so,  my  having  consumed  less  would  not  leave  more  to  be  con- 
sumed by  others,  which  is  a  manifest  contradiction.  When  less 
is  not  produced,  what  one  person  forbears  to  consume  is  necessarily 
added  to  the  share  of  those  to  whom  he  transfers  his  power  of  pur- 
chase. In  the  case  supposed  I  do  not  necessarily  consume  less  ulti- 
mately, since  the  laborers  whom  I  pay  may  build  a  house  forme,  or 
make  something  else  for  my  future  consumption.  But  I  have  at  all 
events  postponed  my  consumption,  and  have  turned  over  part  of 
my  share  of  the  present  produce  of  the  community  to  the  laborers. 
If  after  an  interval  I  am  indemnified,  it  is  not  from  existing  prod- 
uce, but  from  a  subsequent  addition  made  to  it.  I  have  there- 
fore left  more  of  the  existing  produce  to  be  consumed  by  others; 
and  have  put  into  the  possession  of  laborers  the  power  to  consume 
it." 

That  tlie  demand  for  commodities  is  not  a  demand  for 
labor  as  here  enunciated  assumes  that  productive  con- 
sumption can  take  the  place  of  unproductive  indefinitely, 


mOREASE  OF  CAPITAL.  47 

while  the  truth  is,  it  can  only  do  so  for  a  limited  pe- 
riod, and  must  be  followed  bj  a  comparative  increase  of 
unproductive,  equal  or  greater  in  amount,  usually  the 
latter.  Let  us  vary  Mill's  illustration  by  supposing  the 
demand  of  the  individual  possessing  £1,000  to  be  for 
a  house  to  live  in,  and  that  he  will  decide  to  buy  a 
house,  or  build  for  himself,  according  as  either  action 
will  most  benefit  the  laboring  classes.  If  he  decides  to 
buy,  his  demand  in  principle  is  the  same  as  if  he  ex- 
pended the  one  thousand  pounds  for  velvet.  If  he  de- 
cides to  build,  he  undoubtedly  gives  additional  employ- 
ment to  labor  at  the  time.  But  if  the  society  in  which  he 
lives  is  increasing  in  capital  faster  than  in  population,  or 
will  do  so  at  some  future  time,  sooner  or  later,  some- 
where in  the  land,  a  house  will  not  be  built  which  would 
have  been  built  if  he  had  not  anticipated  such  actiou.  If, 
at  the  time  he  builds,  houses  are  already  in  excess,  the 
house  that  he  would  have  bought  if  he  had  not  built  will 
remain  unoccupied,  or  will  serve  by  lowering  rentals  as  a 
discouragement  to  others  building,  and  he  will  only  have 
anticipated  the  demand  for  labor  by  a  very  short  inter- 
val. If  there  happens  to  be  a  scarcity  of  houses,  his  build- 
ing one  lessens  that  scarcity  and  will  prevent  others  sup- 
plying it  by  just  one  house.  He  has  then  only  anticipated 
the  demand  for  labor,  but  by  a  somewhat  less  interval 
than  when  houses  are  plenty.  He  can  not  at  all  increase 
the  wages-fund,  taking  one  year  with  another,  by  his  de- 
cision between  buying  and  building.  He  can,  however, 
benefit  the  situation  of  the  laboring  class  by  equalizing 
in  some  slight  degree  the  demand  for  labor,  which  he 
could  effect  by  building  in  depressed  and  by  buying  in 
prosperous  times.  The  contrary,  however,  is  the  usual 
course  of  those  desiring  houses,  as  they  are  prone  to  buy 
3 


48  CAPITAL  AND  POPULATION. 

in  depressed  and  build  in  prosperous  times,  because  they 
find  an  individual  profit  in  so  doing. 

The  proposition  that  the  demand  for  commodities  is 
not  a  demand  for  labor  has  therefore  little  or  no  signifi- 
cance, but  is  merely  a  verbal  distinction,  utterly  unworthy 
of  the  prominence  it  has  attained,  and  has  no  bearing  in 
any  way  or  shape  on  the  arguments  here  advanced,  except 
as  such  arguments  afford  the  solution  of  the  puzzle.  If, 
however,  instead  of  a  house  or  any  other  article  of  pro- 
longed consumption  possessed  of  exchangeable  value,  the 
owner  of  the  one  thousand  pounds  employs  labor  to  pro- 
duce objects  of  no  utility — as,  for  instance,  if  he  employed 
them  in  removing  and  then  bringing  back  a  pile  of  bricks 
— he  would  benefit  the  laboring  class  at  his  own  expense. 
His  expenditure  would  be  purely  of  the  nature  of  a  gift 
to  his  employes ;  likewise,  if  he  employs  labor  in  personal 
services  the  utility  of  which  perishes  in  the  doing,  he 
certainly  adds  to  the  wages-fund.  But  even  then  he 
makes  no  permanent  addition  to  it,  nor  does  he  when  his 
expenditure  is  of  the  nature  of  a  gift,  even  when  the 
funds  he  expends  come  from  dead  stock,  or  from  active 
stock  the  product  of  which  was  destined  by  him  to  serve 
as  capital.  If  he  restricts  his  own  unproductive  consump- 
tion to  obtain,  in  lieu  of  it,  personal  service,  he  disturbs 
the  normal  ratio  between  capital  and  population ;  as  the 
amount  of  capital  remains  the  same,  while  the  number 
of  laborers  seeking  employment  is  less  by  the  number  of 
them  employed  by  him.  This  results  in  a  rise  of  propor- 
tional wages  and  fall  of  profits,  which  leads  to  a  decline 
of  productive  consumption  until  the  ratio  is  adjusted,  and 
there  is  for  a  time  less  employment  for  laborers  than  if 
he  had  expended  the  one  thousand  pounds  unproductively. 
If  his  demand  for  services  is  permanent,  population  re- 


INCREASE  OF  CAPITAL.  49 

maining  the  same,  there  is  a  permanent  decline  in  the 
normal  amount  of  capital,  and  the  nation  is  permanently 
poorer  in  accumulated  wealth  than  it  would  have  been  if 
his  expenditure  had  been  for  unproductive  consumption 
of  material  things.  This  permanent  loss  will  be  to  the 
detriment,  not  of  the  rate  but  of  the  gross  amount  of 
profits,  and  the  wages-fund  will  be  as  large  as,  but  no 
larger  than,  before. 

If  the  one  thousand  pounds  be  taken  from  capital  or 
from  funds  which  would  have  been  added  to  capital, 
our  supposed  employer  of  labor  in  services  would  lessen 
equally  the  amount  of  capital  and  the  number  of  produc- 
tive laborers,  except  to  the  degree  in  which  he  disturbed 
the  normal  ratio  of  fixed  to  circulating  capital ;  i.  e.,  labor 
employed  in  personal  services  requiring  no  fixed  capital 
to  speak  of,  the  same  amount  of  capital  would  employ 
more  labor  than  before,  which  would  entail  some  slight 
decline  in  profits,  and  the  employment  of  labor.  As  be- 
fore, the  community  at  large  will  be  able  to  retain  some- 
what less  of  capitalized  wealth,  while  the  wages-fund  will 
be  unaffected. 

Every  diversion  of  labor  from  productive  to  unpro- 
ductive employment  necessarily  decreases  the  number  of 
laborers  productively  engaged  and  the  amount  of  capital 
that  can  he  utilized — and  can  not^  as  Mill  practically 
claims^  at  all  increase  the  total  number  or  remuneration 
of  laborers  employed  productively  and  unproductively. 

If  Mill  is  right  in  claiming  that  the  demand  for  com- 
modities is  not  a  demand  for  labor,  it  would  follow  that  the 
greater  the  demand  for  services  the  better  the  condition 
of  the  laborer  should  be.  During  feudal  times  this  de- 
mand was  very  much  greater  than  it  has  ever  since  been, 
but  the  rates  of  both  proportional  and  real  wages  were 


50  CAPITAL  AND  POPULATION. 

then  normally  lower  than  at  present,  and  no  one  will  claim 
that  a  return  to  feudal  customs  would  now  be  of  any 
benefit  to  laborers,  nor  that  it  would  not  certainly  lead 
to  an  enormous  decrease  in  capitalized  wealth,  and  the 
annual  product  of  material  things.  The  appeal  to  facts, 
therefore,  is  decidedly  against  Mill's  ingenious  theory. 

The  w^orld  can  elect  what  proportion  of  its  labor  shall 
be  utilized  productively,  and  what  in  services,  but  it  can 
not  increase  the  amount  of  services  and  enjoy  the  same 
amount  of  material  products  as  before ;  and  this,  when 
analyzed,  is  what  the  proposition,  that  the  demand  for 
commodities  is  not  a  demand  for  labor,  really  asserts. 

Certain  economists  propose  to  include  services  under 
the  term  "  wealth."  To  this  misuse  of  language  I  can  not 
agree  ;  not  that  I  deny  that  services  possess  exchangeable 
value,  but  because  the  distinction  between  material  and 
immaterial  things  is  too  radical.  The  latter  can  neither 
be  accumulated  nor  distributed,  and  the  discovery  of  the 
laws  governing  the  accumulation  and  distribution  of 
material  wealth  is  the  chief  object  of  the  science.  As 
we  have  seen,  services,  although  not  themselves  material 
things,  nevertheless  aifect  the  production  and  accumula- 
tion of  material  things,  and  possess  as  well  both  value 
and  utility.  They  come  certainly  under  the  cognizance 
of  the  science,  but  as  causes,  not  effects.  They  them- 
selves stand  in  but  little  need  of  explanation,  but  aid  in 
explaining  what  does. 


CHAPTER  III. 

THE   TENDENCY    OF    CAPITAL   TO    OUTSTRIP    POPULATION. 

I  HAVE  now  reached  tlie  more  agreeable  task  of  show- 
ing that  my  views  of  the  nature  and  limits  of  capital  dif- 
fer from  those  of  Mill  and  Ricardo  mainly  in  the  manner 
of  statement,  and  are  not  essentially  diverse.  I  do,  in- 
deed, object  most  strenuously  to  the  way  in  which  they 
present  the  subject ;  as  I  hold  that  it  prevents  in  great 
part  the  practical  application  of  economic  ideas,  and  leads 
these  great  thinkers,  as  we  shall  see  later  on,  to  several 
erroneous  theoretical  conclusions.  I  may  be  pardoned  if 
I  quote  somewhat  more  extensively  than  the  argument 
strictly  calls  for,  on  account  of  my  personal  anxiety  to  be 
considered  rather  as  supplementing  than  as  supplanting 
their  contributions  to  the  science. 

To  commence,  then,  with  Mill,  I  will  first  quote  from 
Book  I,  chapter  xi,  section  3  : 

"When  a  country  has  carried  production  as  far  as  in  the  existing 
state  of  knowledge  it  can  be  carried,  with  an  amount  of  return  cor- 
responding to  the  average  strength  of  the  effective  desire  of  accu- 
mulation in  that  country,  it  has  reached  what  is  called  the  stationary 
state — the  state  in  which  no  further  addition  will  be  made  to  capi- 
tal unless  there  takes  place  either  some  improvement  in  the  arts  of 
production,  or  an  increase  in  the  strength  of  the  desire  to  accumu- 
late. In  the  stationary  state,  though  capital  does  not  on  the  whole 
increase,  some  persons  grow  richer  and  others  poorer.  Those 
whose  degree  of  providence  is  below  the  usual  standard,  become  im- 
poverished, their  capital  perishes,  and  makes  room  for  the  savings 


52  CAPITAL  AND  POPULATION. 

of  those  whose  effective  desire  of  accumulation  exceeds  the  average. 
These  hecome  the  natural  purchasers  of  the  land,  manufactories,  and 
other  instruments  of  production  owned  by  their  less  provident  coun- 
trymen." 

Also  from  Book  lY,  chapter  iv,  section  5  : 

"  I  now  say  that  the  mere  continuance  of  the  present  annual  in- 
crease of  capital,  if  no  circumstance  occurred  to  counteract  its  effect, 
would  suflBce  in  a  small  number  of  years  to  reduce  the  rate  of  net 
profit  to  one  per  cent. 

"  To  fulfill  the  conditions  of  the  hypothesis,  we  must  suppose  an 
entire  cessation  of  the  exportation  of  capital  for  foreign  investment. 
No  more  capital  sent  abroad  for  railways  or  loans;  no  more  emi- 
grants taking  capital  with  them  to  the  colonies,  or  to  other  coun- 
tries ;  no  fresh  advances  made,  or  credits  given,  by  bankers  or  mer- 
chants to  their  foreign  correspondents.  We  must  also  assume  that 
there  are  no  fresh  loans  for  unproductive  expenditure  by  the  gov- 
ernment, or  on  mortgage,  or  otherwise ;  and  none  of  the  waste  of 
capital  which  now  takes  place  by  the  failure  of  undertakings,  which 
people  are  tempted  to  engage  in  by  the  hope  of  a  better  income  than 
can  be  obtained  in  safe  paths  at  the  present  habitually  low  rate  of 
profit.  We  must  suppose  the  entire  savings  of  the  community  to  be 
annually  invested  in  really  productive  employment  within  the  coun- 
try itself;  and  no  new  channels  opened  by  industrial  inventions,  or 
by  a  more  extensive  substitution  of  the  best-known  processes  for 
inferior  ones. 

"  Few  persons  would  hesitate  to  say  that  there  would  be  great 
difficulty  in  finding  remunerative  employment  every  year  for  so 
much  new  capital,  and  most  would  conclude  that  there  would  be 
what  used  to  be  termed  a  general  glut ;  that  commodities  would  be 
produced,  and  remain  unsold,  or  be  sold  only  at  a  loss.  But  the  full 
examination  which  we  have  already  given  to  this  question  has 
shown  that  this  is  not  the  mode  in  which  the  inconvenience  would 
be  experienced.  The  difficulty  would  not  consist  in  any  want  of 
market.  If  the  new  capital  were  duly  shared  with  many  varieties 
of  employment,  it  would  raise  up  a  demand  for  its  own  produce, 
and  there  would  be  no  cause  why  any  part  of  that  produce  should 
remain  longer  on  hand  than  formerly.    What  would  really  be,  not 


TENDENCY  OF  CAPITAL  TO  OUTSTRIP  POPULATION.  53 

merely  difficult,  but  impossible,  would  be  to  employ  this  capital 
without  submitting  to  a  rapid  deduction  of  the  rate  of  profit. 

"As  capital  increased,  population  either  would  also  increase,  or 
it  would  not.  If  it  did  not,  wages  would  rise,  and  a  greater  capital 
would  be  distributed  in  wages  among  the  same  number  of  laborers. 
There  being  no  more  labor  than  before,  and  no  improvements  to 
render  the  labor  more  efficient,  there  would  not  be  any  increase  of 
the  produce ;  and  as  the  capital,  however  largely  increased,  would 
only  obtain  the  same  gross  return,  the  whole  savings  of  each  year 
would  be  exactly  so  much  subtracted  from  the  profits  of  the  next 
and  of  every  following  year.  It  is  hardly  necessary  to  say  that  in 
some  circumstances  profits  would  very  soon  fall  to  the  point  at 
which  further  increase  of  capital  would  cease.  An  augmentation 
of  capital,  much  more  rapid  than  that  of  population,  must  soon 
reach  its  extreme  limit,  unless  accompanied  by  increased  efficiency 
of  labor  (through  inventions  and  discoveries,  or  improved  mental 
and  physical  education),  or  unless  some  of  the  idle  people,  or  of  the 
unproductive  laborers,  became  productive." 

And,  again,  from  Book  I,  chapter  xiii,  section  1 : 

*'  But  there  are  other  countries,  and  England  is  at  the  head  of 
them,  in  which  neither  the  spirit  of  industry  nor  the  effective  desire 
of  accumulation  need  any  encouragement ;  where  the  people  will 
toil  hard  for  a  small  remuneration,  and  save  much  for  a  small  profit ; 
where,  though  the  general  thriftiness  of  the  laboring  class  is  much 
below  what  is  desirable,  the  spirit  of  accumulation  in  the  more  pros- 
perous part  of  the  community  requires  abatement  rather  than  in- 
crease. In  these  countries  there  would  never  be  any  deficiency  of 
capital,  if  its  increase  were  never  checked  or  brought  to  a  stand  by 
too  great  a  diminution  of  its  returns." 

And  from  Book  lY,  chapter  v,  section  1 : 

"It  must  always  have  been  seen,  more  or  less  distinctly,  by 
political  economists,  that  the  increase  of  wealth  is  not  boundless ; 
that  at  the  end  of  what  they  term  the  progressive  state  lies  the 
stationary  state ;  that  all  progress  in  wealth  is  but  a  postponement 
of  this,  and  that  each  step  in  advance  is  an  approach  to  it.  We 
have  now  teen  led  to  recognize  that  this  ultimate  goal  is  at  all  times 


54  CAPITAL  AND  POPULATIOK 

near  enough  to  he  fully  in  mew ;  that  we  are  always  on  the  verge 
of  it,  and  that,  if  we  have  not  reached  it  long  ago,  it  is  because  the 
goal  itself  flies  before  us.  The  richest  and  most  prosperous  coun- 
tries would  very  soon  attain  the  stationary  state,  if  no  further  im- 
provements were  made  in  the  productive  arts,  and  if  there  were  a 
suspension  of  the  overflow  of  capital  from  those  countries  into  the 
uncultivated  or  ill-cultivated  regions  of  the  earth." 

And  from  Book  Y,  chapter  iv,  section  4 : 

"  In  England  the  great  emigration  of  capital,  and  the  almost 
periodical  occurrence  of  commercial  crises  through  the  speculations 
occasioned  by  the  habitually  low  rate  of  profit,  are  indications  that 
profit  has  attained  the  practical  though  not  the  ultimate  minimum, 
and  that  all  the  savings  which  take  place  (beyond  what  improve- 
ments, tending  to  the  cheapening  of  necessaries,  make  room  for) 
are  either  sent  abroad  for  investment  or  periodically  swept  away." 

To  this  I  must  object  that  no  destruction  of  capital  or 
wealth  in  any  form  occurs  during  a  panic.  The  excess 
of  capital  is  not  "  swej)t  away  "  in  any  sense  of  the  term. 
It  is  not  even  devoted  to  unproductive  consumption,  as 
that  itself  in  such  times  is  lessened.  The  readjustment 
comes,  and  can  only  come,  from  a  decrease  in  productive 
consumption,  greater  than  the  accompanying  decrease  in 
unproductive.  If  unproductive  consumption  did  not  de- 
crease, the  proper  ratio  of  capital  to  population  would  be 
obtained  much  sooner  than  it  now  is,  viz.,  when  produc- 
tion had  been  decreased  to  an  amount  exactly  equal  to 
the  previous  over-accumulation;  and  the  only  loss  that 
society  would  suffer  would  be  what  it  would  have  lost 
if  the  superabundant  capital  had  been  destroyed  by  fire, 
or  in  any  manner  consumed  without  affording  any  enjoy- 
ment or  satisfaction.  But  the  curtailment  of  unproduc- 
tive consumption  adds  to  this  loss  one  of  many  times  its 
extent,  viz.,  the  loss  for  ever  of  all  those  enjoyments 


TENDENCY  OF  CAPITAL  TO  OUTSTRIP  POPULATION.  55 

which  individuals  have  foregone  by  lessening  their  un- 
productive consumption,  in  their  endeavor  to  retain  their 
own  capital  unimpaired ;  or  rather  the  loss  of  the  produc- 
tion which  would  have  satisfied  such  unproductive  con- 
sumption. There  is  here  a  case  where  individual  are 
opposed  to  social  interests.  By  retrenching  expenditure 
the  individual  adds  to,  or  at  least  retains  more  of,  his 
capital ;  but  he  does  it  at  the  expense  of  the  capital  of 
his  fellow-citizens.  The  capital  that  the  community  can 
permanently  employ,  including  his  own,  is  actually  less- 
ened by  his  accretions  when  the  general  capital  has  in- 
creased more  rapidly  than  population. 
Again,  in  Book  I,  chapter  v,  section  7 : 

"This  perpetual  consumption  and  reproduction  of  capital  affords 
the  explanation  of  what  has  so  often  excited  wonder,  the  great  ra- 
pidity with  which  countries  recover  from  a  state  of  devastation; 
the  disappearance,  in  a  short  time,  of  all  traces  of  the  mischiefs  done 
by  earthquakes,  floods,  hurricanes,  and  the  ravages  of  war.  An 
enemy  lays  waste  a  country  by  fire  and  sword,  and  destroys  or  car- 
ries away  nearly  all  the  movable  wealth  existing  in  it ;  all  the  in- 
habitants are  ruined,  and  yet,  in  a  few  years  after,  everything  is 
much  as  it  was  before.  This  vis  medicatrix  naturm  has  been  a  sub- 
ject of  sterile  astonishment,  or  has  been  cited  to  exemplify  the  won- 
derful strength  of  the  principle  of  saving,  which  can  repair  such 
enormous  losses  in  so  brief  an  interval.  There  is  nothing  at  all 
wonderful  in  the  matter.  What  the  enemy  have  destroyed,  would 
have  been  destroyed  in  a  little  time  by  the  inhabitants  themselves; 
the  wealth  which  they  so  rapidly  reproduce,  would  have  needed  to 
be  reproduced  and  would  have  been  reproduced  in  any  case,  and 
probably  in  as  short  a  time.  Nothing  is  changed,  except  that  dur- 
ing the  reproduction  they  have  not  now  the  advantage  of  consum- 
ing what  had  been  produced  previously.  The  possibility  of  a  rapid 
repair  of  their  disasters  mainly  depends  on  whether  the  country  has 
deen  depopulated.  If  its  effective  population  have  not  been  extir- 
pated at  the  time^  and  are  not  starved  afterward^  then,  with  the 
same  skill  and  knowledge  which  they  had  before,  with  their  land 


66  CAPITAL  AND  POPULATION. 

and  its  permanent  improvements  undestroyed,  and  the  more  durable 
buildings  probably  unimpaired,  or  only  partially  injured,  they  have 
nearly  all  the  requisites  for  their  former  amount  of  production.  If 
there  is  as  much  of  food  left  to  them,  or  of  valuables  to  buy  food, 
as  enables  them  by  any  amount  of  privation  to  remain  alive  and  in 
working  condition,  they  will  in  a  short  time  have  raised  as  great  a 
produce,  and  acquired  collectively  as  great  wealth  and  as  great  a 
capital,  as  before,  by  the  mere  continuance  of  that  ordinary  amount 
of  exertion  which  they  are  accustomed  to  employ  in  their  occupa- 
tions. Nor  does  this  evince  any  strength  in  the  principle  of  saving, 
in  the  popular  sense  of  the  term,  since  what  takes  place  is  not  in- 
tentional abstinence,  but  involuntary  privation." 

And,  finally,  Book  lY,  chapter  iv,  section  4 : 

*'We  now  arrive  at  the  fundamental  proposition  which  this 
chapter  is  intended  to  inculcate.  When  a  country  has  long  possessed 
a  large  production,  and  a  large  net  income  to  make  savings  from, 
and  when,  therefore,  the  means  have  long  existed  of  making  a  great 
annual  addition  to  capital  (the  country  not  having,  like  America,  a 
large  reserve  of  fertile  land  still  unused),  it  is  one  of  the  chief  char- 
acteristics of  such  a  country,  that  the  rate  of  profit  is  habitually 
within,  as  it  were,  a  hand's  breadth  of  the  minimum,  and  the  country, 
therefore,  on  the  very  verge  of  the  stationary  state.  By  this  I  do 
not  mean  that  this  state  is  likely,  in  any  of  the  great  countries  of 
Europe,  to  be  soon  actually  reached,  or  that  capital  does  not  still 
yield  a  profit  considerably  greater  than  what  is  barely  sulficient  to 
induce  the  people  of  those  countries  to  save  and  accumulate." 

I  will  also  quote  Hicardo  in  this  connection,  calling 
attention  to  the  fact  that  he  here  nses  capital  in  Mill's 
sense,  and  can  not  mean  by  it  the  wages-fund — although 
most  of  his  assertions  are  only  true  of  the  wages-fund — 
as  no  increase  of  that  beyond  the  increase  of  population 
is  conceivable. 

Kicardo's  works,  chapter  xxi,  page  174 : 

"  No  accumulation  of  capital  will  permanently  lower  profits,  un- 
less there  be  some  permanent  cause  for  the  rise  in  wages.    If  the 


TENDEI^CY  OF  CAPITAL  TO  OUTSTRIP  POPULATION.  57 

funds  for  the  maintenance  of  labor  were  doubled,  tripled,  or  quad- 
rupled, there  would  not  long  be  any  difficulty  in  procuring  the  nec- 
essary number  of  bauds  to  be  employed  by  those  funds,  but,  owing 
to  the  increasing  difficulty  of  making  constant  additions  to  the  food 
of  the  country,  funds  of  the  same  value  would  probably  not  maintain 
the  same  quantity  of  labor.  If  the  necessaries  of  the  workmen  could 
be  constantly  increased  with  the  same  facility,  there  could  be  no 
permanent  alteration  in  the  rate  of  profit  or  wages,  to  whatever 
amount  capital  might  be  accumulated.  Adam  Smith,  however,  uni- 
formly ascribes  the  fall  of  profits  to  the  accumulation  of  capital,  to 
the  competition  which  will  result  from  it,  without  ever  adverting  to 
the  increasing  difficulty  of  providing  food  for  the  additional  number 
of  laborers  which  the  additional  capital  will  employ.  '  The  increase 
of  stock,'  he  says,  'which  raises  wages  tends  to  lower  profits.' 
Adam  Smith  speaks  here  of  a  rise  of  wages,  but  it  is  a  temporary 
rise  proceeding  from  increased  funds  before  the  population  is  in- 
creased, and  he  does  not  appear  to  see  that,  at  the  same  time  that 
the  capital  is  increased,  the  work  to  be  effected  by  capital  is  in- 
creased in  the  same  proportion.  M.  Say  has,  however,  most  satis- 
factorily shown  that  there  is  no  amount  of  capital  which  may  not 
be  employed  in  a  country,  because  demand  is  only  limited  by  produc- 
tion. No  man  produces  but  with  a  view  to  consume  or  sell,  and  he 
never  sells  but  with  an  intention  to  purchase  some  other  commodity, 
which  may  be  immediately  useful  to  him  or  which  may  contribute 
to  future  production.  By  producing,  then,  he  necessarily  becomes 
either  the  consumer  of  his  own  goods,  or  the  purchaser  and  con- 
sumer of  the  goods  of  some  other  person. 

"  There  can  not  then  be  accumulated  in  a  country  any  amount  of 
capital  which  can  not  be  employed  productively  until  wages  rise  so 
high  in  consequence  of  the  rise  of  necessaries,  and  so  little  conse- 
quently remains  for  the  profits  of  stock,  that  the  motive  for  accu- 
mulation ceases. 

"  Whether  these  increased  productions,  and  the  consequent  de- 
mand which  they  occasion,  shall  or  shall  not  lower  profits,  depends 
solely  on  the  rise  of  wages  ;  and  the  rise  of  wages,  excepting  for  a 
limited  period,  on  the  facility  of  producing  the  food  and  necessaries 
of  the  laborer ;  I  say  for  a  limited  period,  because  no  point  is  better 
established  than  that  the  supply  of  laborers  will  always  ultimately 
be  in  proportion  to  the  means  of  supporting  them. 


58  CAPITAL  AND  POPULATION. 

*'  There  is  only  one  case,  and  that  will  be  temporary,  in  which 
the  accumulation  of  capital,  with  a  low  price  of  food,  may  be  at- 
tended with  a  fall  of  profits,  and  that  is,  when  the  funds  for  the 
maintenance  of  labor  increase  ranch  more  rapidly  than  population  ; 
wages  will  then  he  high,  and  profits  low.  If  every  man  were  to  fore- 
go the  use  of  luxuries  and  he  intent  only  on  accumulation,  a  quantity 
of  necessaries  might  he  produced  for  which  there  could  not  he  any 
immediate  consumption.  Of  commodities  so  limited  in  number  there 
might  undoubtedly  he  a  universal  glut,  and  consequently  there 
might  neither  be  demand  for  an  additional  quantity  of  such  commod- 
ities nor  profits  on  the  employment  of  more  capital.  If  men  ceased 
to  consume  they  would  cease  to  produce — this  admission  does  not 
impugn  the  general  principle." 

Without  any  separate  criticism  of  these  quotations,  I 
am  justified  in  asserting  that,  with  much  from  which  I 
dissent,  they  contain  or  imply  every  one  of  my  premises 
and  deductions,  except  that  of  the  influence  of  increase 
of  capital  upon  population.  That  the  conclusions  of 
Ricardo  and  Mill  differ  from  mine,  is  owing  solely  to 
their  ambiguous  use  of  the  term  "  capital."  Every  one 
of  the  principles  I  have  advocated,  with  the  above  excep- 
tion, they  enunciate  distinctly,  except  that  they  usually, 
but  not  always,  assume  that  capital,  in  Mill's  sense,  and 
the  wages-fund,  i.  e.,  capital,  in  Ricardo's  sense,  vary 
together ;  whereas  I  hold  that  they  vary  inversely,  other 
things,  of  course,  remaining  the  same.  In  this  assertion 
there  can  be  no  doubt  that  I  am  right  and  they  wrong ; 
and  it  is  readily  seen  that  they  fell  into  their  error  from 
not  fully  perceiving  all  the  implications  of  their  own  defi- 
nitions of  capital,  and  through,  taking  it  for  granted  that 
what  was  true  of  it  in  one  tense  was  true  of  it  in  all,  and 
from  the  misleading  supposition  that  a  low  rate  of  profit 
was  a  stimulus  to  population. 

But  I  differ  from  them  in  a  matter  I  have  not  yet 


TENDEJTCY  OF  CAPITAL  TO  OUTSTRIP  POPULATION.  59 

touclied  upon,  except  by  implication,  viz.,  in  my  views 
as  to  what  constitutes  the  progressive,  stationary,  and 
retrogressive  states  of  society ;  and  the  difference  is  im- 
portant, as  the  soundness  of  my  position  here  will  affect 
the  truth  of  deductions  to  be  made  later  on,  the  practical 
application  of  which  will  profoundly  influence  the  eco- 
nomic policy  w^hich  nations  should  adopt  to  secure  for 
themselves  the  greatest  possible  share  of  the  world's 
products,  and  to  increase  to  the  highest  point  their  own 
productive  efficiency. 

The  circumstance  that  seems  to  me  important  is  the 
determination  of  the  question  whether  the  net  produce 
of  a  nation  bears  an  increasing,  a  decreasing,  or  a  steady 
ratio  to  its  population.  If  the  income  ^^r  capita  of  its 
people  is  growing  larger,  I  should  say  it  was  enjoying  an 
economic  progress  ;  if  smaller,  that  it  was  going  backward, 
irrespective  of  whether  such  advance  or  retrogression  was 
accompanied  by  a  growth  or  decline  of  the  total  wealth 
and  population.*  It  is,  indeed,  true  that  any  increase 
in  net  income  per  capita  is  usually  accompanied  by  an 
increase  in  the  aggregate  of  accumulation  and  of  popula- 
tion ;  but  the  latter  must  be  distinguished  from  the  for- 
mer as  being  its  effect  and  counteractant.  It  is  its  effect, 
because  any  increase  in  net  income  is  an  additional  stimu- 
lus to  population  ;  and  its  counteractant,  because  every  in- 
crease of  numbers  lowers  the  margin  of  cultivation,  and 
because  every  increase  of  capital  beyond  that  of  popula- 
tion decreases  the  capacity  of  the  nation  to  produce  by 
lessening  the  number  of  laborers  employed  :  but  there  is 
no  necessary  connection  between  increase  of  net  income 

*  In  net  income  I  would  include  the  income  of  immediate  satisfactions 
and  enjoyments  derived  from  commodities  reserved  for  prolonged  unpro- 
ductive consumption,  as  well  as  of  those  derived  from  services. 


60  CAPITAL  AND  POPULATION". 

and  population,  or  between  a  large  annual  production  and 
accumulation.  When  people  understand  and  fully  ap- 
preciate the  working  of  economic  laws,  they  will  endeavor 
to  dissociate  them,  and  there  is  no  reason  why  they  should 
be  unsuccessful  in  such  efforts.  When  this  is  effected, 
advantages  gained  in  productive  efficiency  will  not  be 
wasted  in  a  mere  increase  of  numbers,  or  be  frittered 
away  and  made  barren  of  enjoyment  by  the  attempt 
to  possess  more  capitalized  wealth  than  economic  law 
allows. 

Strictly  speaking,  there  is  no  stationary  state  of  so- 
ciety at  all.  The  perpetual  flux  and  reflux  of  human 
events  prevent  such  a  state  from  being  more  than  mo- 
mentary, a  mere  turning-point  between  the  progressive 
and  the  retrogressive,  or  vice  versa.  When  the  growth 
in  net  incomes,  in  which  I  consider  the  progressive  state 
to  consist,  is  counteracted  by  the  growth  of  aggregate 
capital  and  population,  which  Mill  seems  to  consider  as 
constituting  it,  society  pauses  stationary  for  a  moment, 
and  then  enters  the  retrogressive  state,  in  which  its  annual 
produce  and  net  income  decline,  and  this  proceeds  until 
the  consequent  decrease  of  capital  and  population  checks 
society  in  its  dow^nward  course,  and  it  again  momentarily 
pauses,  in  a  second  and  lower  stationary  state,  from  which 
an  advance  is  once  more  effected.  If,  on  the  whole,  a  na- 
tion progresses  in  wealth,  population,  and  the  average  in- 
come of  its  inhabitants  (without  this  last  ingredient,  I 
refuse  to  accept  it  as  progress  at  all),  it  is  not,  as  Mill 
seems  to  suppose,  because  it  has  never  entered  the  station- 
ary or  retrogressive  states,  but  because  its  passage  through 
the  progressive  state  has  been  longer,  and  has  more  influ- 
enced its  economic  condition,  than  its  passage  through 
the  others.     The  progress  of  society  is  due,  not  to  ground 


TENDENCY  OF  CAPITAL  TO  OUTSTRIP  POPULATION.  61 

never  being  lost,  but  to  the  fact  that,  while  much  is  re- 
peatedly lost,  more  has  been  gained:  like  the  incoming 
tide,  each  wave  has  reached  a  higher  level  than  its 
predecessor. 

Mill,  and  Ricardo  with  him,  seems  to  have  considered 
the  stationary  state  of  society  as  never  practically  reached, 
and  to  have  thought  it  somewhat  problematical  that  it 
ever  would  be.  They  w^ould  both  freely  admit  the  con- 
clusions I  have  drawn,  as  well  as  those  to  be  hereafter 
deduced,  as  applicable  to  such  a  social  condition,  and, 
when  induced  to  admit  that  all  civilized  nations  complete 
the  round  of  the  three  states  in  constantly  recumng 
periods  of  about  ten  years,  they  could  not  but  regard  the 
validity  of  my  conclusions  as  established.  The  possibil- 
ity of  capital  pressing  upon  population  is  clearly  recog- 
nized by  them.  If  they  had  recognized  that  this  press- 
ure is  not  only  an  abstract  possibility,  but  an  actually 
existent  economic  fact,  and  that  the  pressure  of  capital 
upon  population  is  as  constant  and  steady  as  that  of  pop- 
ulation upon  the  food-supply,  they  could  not  have  failed 
to  draw  as  important  conclusions  from  the  principle  they 
neglected,  as  being  merely  theoretical,  as  they  did  draw 
from  the  theory  of  Malthus. 

That  the  tendency  of  capital  to  increase  faster  than 
population  is  steady  and  constant,  whenever  and  wher- 
ever men  in  their  economic  actions  are  undisturbed  by 
abnormal  events,  is  the  central  thouglit  of  this  treatise, 
and  is  the  contribution  I  bring  to  the  science  of  political 
economy. 

I  do  not  mean  by  this  that  capital  constantly  increases 
more  rapidly  than  population,  any  more  than  Malthus 
meant  that  population  always  increased  faster  than  its 
food-supply.     The  increase  of  capital  and  of  population 


62  CAPITAL  AN"D  POPULATIOK. 

both  have  their  checks,  which  operate  in  very  similar 
manner. 

Profits  are  the  means  of  support  to  capital,  as  truly 
and  very  much  in  the  same  sense  as  food  is  the  means  of 
support  to  population.  The  checks  upon  both  capital  and 
population  operate  in  the  same  manner,  and  not  only 
often  forbid  further  increase,  but  sometimes  demand  an 
actual  decrease.  It  is  not  the  increase  of  either  popula- 
tion or  capital  that  is  constant,  but  the  tendency  to  such 
increase  heyond  their  economic  limits. 

I  must  not  be  understood  as  asserting  that  all  human 
societies  show  this  tendency  in  a  periodical  increase  of 
capital  beyond  the  needs  of  population.  Whenever  and 
wherever  capital  is  physically  insufficient  to  furnish  the 
amount  of  wages-fund  that  can  be  profitably  employed, 
the  limitations  to  capital  are  removed  as  long  as  such 
condition  lasts.  In  one  sense  all  barbarous,  semi-civilized, 
and  despotic  countries,  where  there  is  but  scanty  security 
for  life  and  property,  can  be  said  to  be  in  this  condition, 
and  the  checks  to  accumulation  in  them  are  moral  and 
social,  and  not  economic.  What  I  mean  is,  that  in  the 
absence  of  war,  famine,  and  bad  government,  capital  will 
constantly  tend  to  outstrip  population,  will  periodically 
succeed  in  so  doing,  and  will  be  in  excess,  to  the  detriment 
of  production  for  a  greater  or  less  portion  of  the  time. 
The  analogy  between  the  pressure  it  exerts  and  that  ex- 
erted by  population  on  the  margin  of  cultivation  is  as 
perfect  as  it  is  the  nature  of  any  analogy  to  be.  Even 
taking  Mill's  definition  of  what  constitutes  the  stationary 
state,  viz.,  the  decline  of  the  rate  of  profit  to  the  minimum 
and  the  cessation  of  accumulation,  what  is  more  evident 
than  that  such  decline  is  the  most  important  occurrence 
in  every  period  of  industrial  stagnation,  and  that  not  only 


TENDENCY  OF  CAPITAL  TO  OUTSTEIP  POPULATION  63 

in  such  times  is  the  stationary  state  as  defined  by  him 
reached,  but  that  the  rate  of  profit  then  declines  below 
the  minimum  and  carries  the  community  for  a  time  into 
the  retrogressive  state  in  which  a  decrease  of  production 
takes  place  ?  That  the  state  of  civilized  communities  is 
still  on  the  average  progressive,  is  certainly  no  proof  that 
the  other  states  are  not  occasionally  reached.  A  perma- 
nent stationary  or  retrogressive  state  can  not  occur  until 
all  the  fertile  land  of  the  globe  is  reclaimed,  and  then 
only  in  the  absence  of  further  improvements  and  inven- 
tions, and  of  a  decrease  of  population,  except,  indeed,  pop- 
ulation increases  as  fast  as,  or  faster  than,  the  reclamation 
of  fertile  land.  The  condition  of  mankind  in  the  station- 
ary and  retrogressive  states,  instead,  however,  of  being  a 
curious  problem,  the  solution  of  which  has  a  practical  in- 
terest for  future  generations  alone,  is  a  topic  of  pressing 
importance. 


CHAPTEE  ly. 


FIXED    CAPITAL. 


"  There  is  a  great  difference  between  the  effects  of  circulating 
and  those  of  fixed  capital,  on  the  amount  of  the  gross  produce  of 
the  country.  Circulating  capital  being  destroyed  as  such,  br  at  any 
rate  finally  lost  to  the  owner,  by  a  single  use,  and  the  product  re- 
sulting from  that  one  use  being  the  only  source  from  which  the 
owner  can  replace  the  capital,  or  obtain  any  remuneration  for  its 
productive  employment,  the  product  must  of  course  be  sufficient 
for  those  purposes ;  or,  in  other  words,  the  result  of  a  single  use 
must  be  a  reproduction  equal  to  the  whole  amount  of  the  circulating 
capital  used,  and  a  profit  besides.  This,  however,  is  by  no  means 
necessary  in  the  case  of  fixed  capital.  Since  machinery,  for  exam- 
ple, is  not  wholly  consumed  by  one  use,  it  is  not  necessary  that  it 
should  be  wholly  replaced  from  the  product  of  that  use.  The  ma- 
chine answers  the  purpose  of  its  owner,  if  it  brings  in,  during  each 
interval  of  time,  enough  to  cover  the  expense  of  repairs,  and  the 
deterioration  in  value  which  the  machine  has  sustained  during  the 
same  time,  with  a  surplus  sufficient  to  yield  the  ordinary  profit  on 
the  entire  value  of  the  machine. 

"  From  this  it  follows  that  all  increase  of  fixed  capital^  when 
talcing  place  at  the  expense  of  circulating^  must  he  at  least  tempora- 
rily prejudicial  to  the  interests  of  the  laborers.  This  is  true,  not  of 
machinery  alone,  but  of  all  improvements  by  which  capital  is  sunk ; 
that  is,  rendered  permanently  incapable  of  being  applied  to  the 
maintenance  and  remuneration  of  labor.  Suppose  that  a  person 
farms  his  own  land,  with  a  capital  of  two  thousand  quarters  of 
corn,  employed  in  maintaining  laborers  during  one  year  (for  sim- 
plicity we  omit  the  consideration  of  seed  and  tools),  whose  labor 


FIXED  CAPITAL.  65 

produces  him  annually  two  thousand  four  hundred  quarters,  being 
a  profit  of  twenty  per  cent.  This  profit  we  shall  suppose  that  he 
annually  consumes,  carrying  on  his  operations  from  year  to  year  on 
the  original  capital  of  two  thousand  quarters.  Let  us  now  suppose 
that,  by  the  expenditure  of  half  his  capital,  he  effects  a  permanent 
improvement  of  his  land,  which  is  executed  by  half  his  laborers, 
and  occupies  them  for  a  year,  after  which  he  will  only  require,  for 
the  effectual  cultivation  of  his  land,  half  as  many  laborers  as  before. 
The  remainder  of  his  capital  he  employs  as  usual.  In  the  first  year 
there  is  no  difference  in  the  condition  of  the  laborers,  except  that 
part  of  them  have  received  the  same  pay  for  an  operation  on  the 
land  which  they  previously  obtained  for  plowing,  sowing,  and  reap- 
ing. At  the  end  of  the  year,  however,  the  improver  has  not,  as 
before,  a  capital  of  two  thousand  quarters  of  corn.  Only  one  thou- 
sand quarters  of  his  capital  have  been  reproduced  in  the  usual  way: 
he  has  now  only  those  thousand  quarters  and  his  improvements. 
He  will  employ,  in  the  next  and  in  each  following  year,  only  half 
the  number  of  laborers,  and  will  divide  among  them  only  half  the 
former  quantity  of  subsistence.  The  loss  will  soon  be  made  up  to 
them  if  the  improved  land,  with  the  diminished  quantitj'  of  labor, 
produces  two  thousand  four  hundred  quarters  as  before,  because  so 
enormous  an  accession  of  gain  will  probably  induce  the  improver  to 
save  a  part,  add  it  to  his  capital,  and  become  a  larger  employer  of 
labor.  But  it  is  conceivable  that  this  may  not  be  the  case;  for 
(supposing,  as  we  may  do,  that  the  improvement  will  last  indefi- 
nitely, without  any  outlay  worth  mentioning  to  keep  it  up)  the 
improver  will  have  gained  largely  by  his  improvement  if  the  land 
now  yields,  not  two  thousand  four  hundred,  but  one  thousand  five 
hundred  quarters ;  since  this  will  replace  the  one  thousand  quarters 
forming  his  present  circulating  capital,  with  a  profit  of  twenty-five 
per  cent  (instead  of  twenty  as  before)  on  the  whole  capital,  fixed 
and  circulating  together.  The  improvement,  therefore,  may  be  a 
very  profitable  one  to  him,  and  yet  very  injurious  to  the  laborers. 

"  The  supposition,  in  the  terms  in  which  it  has  been  stated,  is 
purely  ideal ;  or  at  most  applicable  only  to  such  a  case  as  that  of 
the  conversion  of  arable  land  into  pasture,  which,  though  formerly 
a  frequent  practice,  is  regarded  by  modern  agriculturists  as  the  re- 
verse of  an  improvement.  The  clearing  away  of  the  small  farmers 
in  the  north  of  Scotland,  within  the  present  century,  was,  however, 


QQ  CAPITAL  AND  POPULATION". 

a  case  of  it ;  and  Ireland,  since  tlie  potato  famine  and  the  repeal 
of  the  corn-laws,  is  another.  The  remarkable  decrease  which  has 
lately  attracted  notice  in  the  gross  produce  of  Irish  agriculture  is, 
to  all  appearance,  partly  attributable  to  the  diversion  of  land  from 
maintaining  human  laborers  to  feeding  cattle  ;  and  it  could  not  have 
taken  place  without  the  removal  of  a  large  part  of  the  Irish  popula- 
tion by  emigration  or  death.  We  have  thus  two  recent  instances  in 
which  what  was  regarded  as  an  agricultural  improvement  has  dimin- 
ished the  power  of  the  country  to  support  its  population.  The  effect, 
however,  of  aU  the  improvements  due  to  modern  science  is  to 
increase,  or,  at  all  events,  not  to  diminish,  the  gross  produce.  But 
this  does  not  affect  the  substance  of  the  argument.  Suppose  that 
the  improvement  does  not  operate  in  the  manner  supposed — does 
not  enable  a  part  of  the  labor  previously  employed  on  the  land  to  be 
dispensed  with — but  only  enables  the  same  labor  to  raise  a  greater 
produce.  Suppose,  too,  that  the  greater  produce,  which  by  means 
of  the  improvement  can  be  raised  from  the  soil  with  the  same  labor, 
is  aU  wanted,  and  will  find  purchasers.  The  improver  will  in  that 
case  require  the  same  number  of  laborers  as  before,  at  the  same 
wages.  But  where  will  he  find  the  means  of  paying  them  ?  He 
has  no  longer  his  original  capital  of  two  thousand  quarters  dispos- 
able for  the  purpose.  One  thousand  of  them  are  lost  and  gone — 
consumed  in  making  the  improvement.  If  he  is  to  employ  as  many 
laborers  as  before,  and  pay  them  as  highly,  he  must  borrow,  or  ob- 
tain from  some  other  source,  a  thousand  quarters  to  supply  the 
deficit.  But  these  thousand  quarters  already  maintained,  or  were 
destined  to  maintain,  an  equivalent  quantity  of  labor.  They  are 
not  a  fresh  creation ;  their  destination  is  only  changed  from  one 
productive  employment  to  another ;  and,  though  the  agriculturist 
has  made  up  the  deficiency  in  his  own  circulating  capital,  the  breach 
in  the  circulating  capital  of  the  community  remains  unrepaired." — 
(Mill,  Book  I,  chapter  vi,  section  2.) 

The  necessity  whicli  the  English  school  of  economists 
labor  under,  of  making  it  appear  that  industrial  inactiv- 
ity is  due  to  the  scarcity  of  material  wealth,  or  rather  of 
circulating  capital,  has  led  them  to  assert  that  the  increase 
of  fixed  capital  often  causes  the  decrease  of  the  wages- 


FIXED   CAPITAL.  67 

fund.  They  generally  express  themselves  somewhat  dif- 
ferently, and  substitute  the  words  "  circulating  capital " 
for  wages-fund;  as,  in  the  above  passage,  Mill  says: 
"  From  this  it  follows  that  all  increase  of  fixed  capital, 
when  taking  place  at  the  expense  of  circulating,  must 
be,  at  least  temporarily,  prejudicial  to  the  interests  of 
the  laborers."  The  passage  is  not  true,  unless  circulating 
capital  is  understood  as  the  wages-fund  alone.  It  some- 
times happens  that  the  increase  of  fixed  capital  is  at  the 
expense  of  the  wages-fund,  and  Mill  gives  two  instances 
where  this  has  occurred ;  but  it  is  evident  that  such  de- 
pletion of  the  wages-fund  can  not  occur  until  the  other 
part  of  circulating  capital — dead  stock — is  first  converted 
into  fixed  capital.  But  Mill  evidently  intends  to  convey 
the  idea  that  all  increase  of  fixed,  at  the  expense  of  circu- 
lating capital  (as  defined  by  himself),  is  prejudicial  to  the 
laborers.  On  the  contrary,  it  is  evident  that  any  deple- 
tion of  dead  stock  by  its  conversion  into  fixed  capital  raises 
the  rate  of  profit  on  active  circulating  stock,  and  leads  to 
a  further  depletion  of  dead  stock  by  the  conversion  of 
more  of  it  into  the  wages-fund  than  would  otherwise  go 
there.  The  demand  for  labor  resulting  from  the  conver- 
sion of  dead  stock  into  fixed  capital  can  not  raise  real, 
though  it  may  money,  wages,  because  while  it  is  taking 
place  the  decrease  of  dead  stock  will  cause  the  things  in 
which  wages  are  really  paid  to  rise  in  money-value  more 
than  money- wages  can  by  any  possibility  advance.  What 
finally  causes  a  rise  in  wages  and  a  decline  in  the  money- 
value  of  dead  stock  is,  the  demand  for  labor  caused  by 
the  attempt  to  utilize  such  fixed  capital ;  and  such  rise  of 
wages  and  fall  in  the  value,  as  compared  with  wages,  of 
dead  stock,  can  only  occur  when  the  labor  at  first  applied 
to  the  creation  of  fixed  capital  is  employed  in  utilizing  it 


68  CAPITAL  AND  POPULATION. 

in  production,  and  has  caused  an  increase  of  dead  stoch  to 
such  degree  as  to  more  than  make  ujp  its  depletion  hy  fixed 
capital. 

Over-investment,  even  when  it  is  so  great  as  to  use  up 
all  the  dead  and  part  of  the  active  stock  besides,  puts  off 
the  time  when  labor  can  not  be  profitably  employed.  Its 
action  is  that  of  an  anticipated  demand  for  labor,  and  its 
evil  effects  are  not  felt  until  the  period  of  recuperation ; 
then  the  demand  that  has  been  anticipated  can  not  be 
exerted.  The  idle  factories  and  workshops  stand  ready 
to  be  utilized  the  moment  there  is  a  profit  in  using  them ; 
and  no  more  will  be  erected  until  their  number  becomes 
insufficient  for  the  demands  of  industry.  If,  in  times  of 
stagnation,  all  superfluous  fixed  capital  and  dead  stock 
were  incontinently  destroyed,  it  would  lead  to  an  almost 
immediate  resumption  of  industrial  activity.  If  this  were 
habitually  done,  it  would  be  greatly  to  the  advantage  of 
the  laborers,  as  it  would  result  in  a  permanent  increase  of 
the  average  amount  of  the  wages-fund,  l^or  would  it  be 
at  all  to  the  disadvantage  of  capitalists  as  a  class ;  on  the 
contrary,  they  would  gain  by  it,  though  not  to  the  extent 
of  the  laborers.  The  real  destruction  of  such  property  oc- 
curs when  funds  that  should  have  gone  to  unproductive 
consumption  were  diverted  to  fixed  capital,  or  retained  as 
dead  stock.  Once  suffered,  the  loss  is  irreparable ;  but  a 
further  loss  is  entailed  to  both  labor  and  capital  by  the 
continuance  in  existence  of  such  property,  prohibiting 
future  production  often  to  many  times  its  own  amount. 
I  am  not  advocating  any  destruction  of  unprofitable  stock ; 
that  would  certainly  be  impracticable  without  entailing 
great  injustice  to  individuals ;  but  I  am  pleading  against 
its  creation.  Such  arbitrary  destruction  of  superabun- 
dant capital  does  sometimes  occur  in  the  natural  course 


FIXED  CAPITAL.  69 

of  human  events,  and  is  always  followed  by  a  season  of 
great  industrial  activity.  This  explains  the  rapid  recov- 
ary  of  nations  from  the  effects  of  the  most  devastating 
wars,  and  their  prosperity  during  their  continuance,  al- 
though the  destruction  of  human  life  and  the  drain  of 
laborers  to  the  army  largely  counteract  the  effects  of  the 
depletion  of  capital.  Witness  the  wonderful  recovery  of 
France  from  the  terrible  losses  and  enormous  indemnity 
imposed  upon  her  by  Germany.  Germany  brought  home 
with  her  milliards  her  own  industrial  ruin,  and  has  un- 
dergone a  loss  in  productive  power  many  times  greater 
than  the  sum  she  filched  from  her  neighbor,  while  France 
is  wealthier  to-day  than  before  the  enormous  tribute  was 
exacted. 

It  is  incorrect,  therefore,  to  attribute  the  origin  of  our 
depressions  to  over-investment.  What  that  really  effects 
is,  to  defer  their  occurrence,  and  to  prolong  them  when 
finally  they  do  occur. 

That  Mill's  views  really  coincide  with  mine,  as  ex- 
pressed in  this  chapter,  I  also  claim,  and  submit  the  fol- 
lowing extracts  to  prove  the  assertion,  and  shall  leave 
them  without  further  comment  than  the  intelligent  read- 
er can  supply  for  himself  from  what  has  been  said,  and 
will  only  ask  that  Mill's  ambiguous  use  of  the  term  "  cap- 
ital "  shall  be  constantly  borne  in  mind : 

"  The  theory  of  the  effect  of  accumulation  on  profits  laid  down 
in  the  preceding  chapter,  materially  alters  many  of  the  practical 
conclusions  which  might  otherwise  be  supposed  to  follow  from  the 
general  principles  of  political  economy,  and  which  were,  indeed, 
long  admitted  as  true  by  the  highest  authorities  on  the  subject. 

*'  It  must  greatly  abate,  or  rather,  altogether  destroy,  in  coun- 
tries where  profits  are  low,  the  immense  importance  which  used  to 
be  attached  by  political  economists  to  the  effects  which  an  event  or 
a  measure  of  government  might  have  in  adding  to,  or  subtracting 


70  CAPITAL  AND  POPULATION. 

from,  tlie  capital  of  tlie  country.  "We  have  now  seen  that  the  low- 
ness  of  profits  is  a  proof  that  the  spirit  of  accumulation  is  so  active, 
and  that  the  increase  of  capital  has  proceeded  at  so  rapid  a  rate,  as 
to  outstrip  the  two  counter-agencies,  improvements  in  production, 
and  increased  supply  of  cheap  necessaries  from  abroad :  and  that 
unless  a  considerable  portion  of  the  annual  increase  of  capital  were 
either  periodically  destroyed,  or  exported  for  foreign  investment, 
the  country  would  speedily  attain  the  point  at  which  further  accu- 
mulation would  cease ;  or,  at  least,  spontaneously  slacken  so  as  no 
longer  to  overpass  the  march  of  invention  in  the  arts  which  pro- 
duce the  necessaries  of  life.  In  such  a  state  of  things  as  this,  a 
sudden  addition  to  the  capital  of  the  country,  unaccompanied  by 
any  increase  of  productive  power,  would  be  but  of  transitory  du- 
ration ;  since  by  depressing  profits  and  interest,  it  would  either 
diminish  by  a  corresponding  amount  the  savings  which  would  be 
made  from  income  in  the  year  or  two  following,  or  it  would  cause 
an  equivalent  amount  to  be  sent  abroad,  or  to  be  wasted  in  rash 
speculations.  Neither,  on  the  other  hand,  would  a  sudden  abstrac- 
tion of  capital,  unless  of  inordinate  amount,  have  any  real  effect  in 
impoverishing  the  country.  After  a  few  months  or  years,  there 
would  exist  in  the  country  just  as  much  capital  as  if  none  had  been 
taken  away.  The  abstraction,  by  raising  profits  and  interest,  would 
give  a  fresh  stimulus  to  the  accumulative  principle,  which  would 
speedily  fill  up  the  vacuum.  Probably,  indeed,  the  only  effect  that 
would  ensue,  would  be  that  for  some  time  afterward  less  capital 
would  be  exported,  and  less  thrown  away  in  hazardous  speculation. 
"In  the  first  place,  then,  this  view  of  things  greatly  weakens,  in 
a  wealthy  and  industrious  country,  the  force  of  the  economical  argu- 
ment against  the  expenditure  of  public  money  for  really  valuable, 
even  though  industriously  unproductive,  purposes.  If  for  any  great 
object  of  justice  or  philanthropic  policy,  such  as  the  industrial  re- 
generation of  Ireland,  or  a  comprehensive  measure  of  colonization 
or  of  public  education,  it  were  proposed  to  raise  a  large  sum  by  way 
of  loan,  politicians  need  not  demur  to  the  abstraction  of  so  much 
capital  as  tending  to  dry  up  the  permanent  sources  of  the  country's 
wealth,  and  diminish  the  fund  which  supplies  the  subsistence  of  the 
laboring  population.  The  utmost  expense  which  could  be  requisite 
for  any  of  these  purposes  would  not,  in  all  probability,  deprive  one 
laborer  of  employment,  or  diminish  the  next  year's  production  by 


FIXED   CAPITAL.  71 

one  ell  of  cloth  or  one  bushel  of  grain.  In  poor  countries,  the  cap- 
ital of  the  country  requires  the  legislator's  sedulous  care;  he  is 
bound  to  be  most  cautious  of  encroaching  upon  it,  and  should  favor 
to  the  utmost  its  accumulation  at  home,  and  its  introduction  from 
abroad.  But  in  rich,  populous,  and  highly  cultivated  countries,  it  is 
not  capital  which  is  the  deficient  element,  but  fertile  land ;  and  what 
the  legislator  should  desire  and  promote,  is  not  a  greater  aggregate 
saving,  but  a  greater  return  to  savings,  either  by  improved  cultiva- 
tion, or  by  access  to  the  produce  of  more  fertile  lands  in  other  parts 
of  the  globe.  In  such  countries,  the  government  may  take  any 
moderate  portion  of  the  capital  of  the  country  and  expend  it  as 
revenue,  without  affecting  the  national  weath,  the  whole  being 
either  drawn  from  that  portion  of  the  annual  savings  which  would 
otherwise  be  sent  abroad,  or  being  subtracted  from  the  uni)roduc- 
tive  expenditure  of  individuals  for  the  next  year  or  two,  since  every 
million  spent  makes  room  for  another  million  to  be  saved  before 
reaching  the  overflowing  point.  When  the  object  in  view  is  worth 
the  sacrifice  of  such  an  amount  of  the  expenditure  that  furnishes 
the  daily  enjoyments  of  the  people,  the  only  well-grounded  econom- 
ical objection  against  taking  the  necessary  funds  directly  from  cap- 
ital, consists  of  the  inconveniences  attending  the  process  of  raising 
a  revenue  by  taxation,  to  pay  the  interest  of  a  debt. 

"  The  same  considerations  enable  us  to  throw  aside  as  unworthy 
of  regard  one  of  the  common  arguments  against  emigration  as  a 
means  of  relief  for  the  laboring  class.  Emigration,  it  is  said,  can 
do  no  good  to  the  laborers,  if,  in  order  to  defray  the  cost,  as  much 
must  be  taken  away  from  the  capital  of  the  country  as  from  its 
population.  That  anything  like  this  proportion  could  require  to  be 
abstracted  from  capital  for  the  purpose  even  of  the  most  extensive 
colonization,  few,  I  should  think,  would  now  assert ;  but,  even  on  that 
untenable  supposition,  it  is  an  error  to  suppose  that  no  benefit  would 
be  conferred  on  the  laboring  class.  If  one  tenth  of  the  laboring 
people  of  England  were  transferred  to  the  colonies,  and  along  with 
them  one  tenth  of  the  circulating  capital  of  the  country,  either 
wages  or  profits,  or  both,  would  be  greatly  benefited,  by  the  dimin- 
ished pressure  of  capital  and  population  upon  the  fertility  of  the 
land.  There  would  be  a  reduced  demand  for  food ;  the  inferior 
arable  lands  would  be  thrown  out  of  cultivation,  and  would  become 
pasture ;  the  superior  would  be  cultivated  less  highly,  but  with  a 
4 


72  CAPITAL  AND  POPULATION. 

greater  proportional  return ;  food  would  be  lowered  in  price,  and, 
tliough  money- wages  would  not  rise,  every  laborer  would  be  con- 
siderably improved  in  circumstances — an  improvement  which,  if  no 
increased  stimulus  to  population  and  fall  of  wages  ensued,  would  be 
permanent ;  while,  if  there  did,  profits  would  rise,  and  accumula- 
tion start  forward  so  as  to  repair  the  loss  of  capital.  The  landlords 
alone  would  sustain  some  loss  of  income ;  and  even  they,  only  if 
colonization  went  to  the  length  of  actually  diminishing  capital  and 
population,  but  not  if  it  merely  carried  off  the  annual  increase. 

"From  the  same  principles  we  are  now  able  to  arrive  at  a  final 
conclusion  respecting  the  effects  which  machinery,  and  generally  the 
sinking  of  capital  for  a  productive  purpose,  produce  upon  the  im- 
mediate and  ultimate  interests  of  the  laboring  class.  The  charac- 
teristic property  of  this  class  of  industrial  improvements  is  the  con- 
version of  circulating  capital  into  fixed ;  and  it  was  shown,  in  the 
first  book,  that,  in  a  country  where  capital  accumulates  slowly,  the 
introduction  of  machinery,  permanent  improvements  of  land,  and 
the  like,  might  be,  for  the  time,  extremely  injurious ;  since  the  capi- 
tal so  employed  might  be  directly  taken  from  the  wages-fund,  the 
subsistence  of  the  people  and  the  employment  for  labor  curtailed, 
and  the  gross  annual  produce  of  the  country  actually  diminished. 
But,  in  a  country  of  great  annual  savings  and  low  profits,  no  such 
effects  need  be  apprehended.  Since  even  the  emigration  of  capital, 
or  its  unproductive  expenditure,  or  its  absolute  waste,  do  not  in 
such  a  country,  if  confined  within  any  moderate  bounds,  at  all  di- 
minish the  aggregate  amount  of  the  wages-fund,  still  less  can  the 
mere  conversion  of  a  like  sum  into  fixed  capital,  which  continues  to 
be  productive,  have  that  effect.  It  merely  draws  off  at  one  orifice 
what  was  already  flowing  out  at  another ;  or,  if  not,  the  greater  va- 
cant space  left  in  the  reservoir  does  but  cause  a  greater  quantity  to 
flow  in.  Accordingly,  in  spite  of  the  mischievous  derangements  of 
the  money-market  which  have  been  occasioned  by  the  sinking  of 
great  sums  in  railways,  I  was  never  able  to  agree  with  those  who 
apprehended  mischief  from  this  source  to  the  productive  resources 
of  the  country.  Not  on  the  absurd  ground  (which  to  any  one  ac- 
quainted with  the  elements  of  the  subject  needs  no  confutation)  that 
railway  expenditure  is  a  mere  transfer  of  capital  from  hand  to  hand, 
by  which  nothing  is  lost  or  destroyed.  This  is  true  of  what  is  spent 
in  the  purchase  of  the  land ;  a  portion,  too,  of  what  is  paid  to  par- 


FIXED  CAPITAL.  73 

liamentary  agents,  counsel,  engineers,  and  surveyors,  is  saved  by 
those  who  receive  it,  and  becomes  capital  again ;  but  v<rhat  is  laid 
out  in  the  hona  fide  construction  of  the  railway  itself  is  lost  and 
gone ;  when  once  expended,  it  is  incapable  of  ever  being  paid  in 
wages  or  applied  to  the  maintenance  of  laborers  again ;  as  a  matter 
of  account,  the  result  is  that  so  much  food  and  clothing  and  tools 
have  been  consumed,  and  the  country  has  got  a  railway  instead. 
But  what  I  would  urge  is,  that  sums  so  applied  are  mostly  a  mere 
appropriation  of  the  annual  overflowing  which  would  otherwise 
have  gone  abroad,  or  been  thrown  away  unprofitably,  leaving  neither 
a  railway  nor  any  other  tangible  result.  The  railway  gambling  of 
1844  and  1845  probably  saved  the  country  from  a  depression  of 
profits  and  interest,  and  a  rise  of  all  public  and  private  securities, 
which  would  have  engendered  still  wilder  speculations,  and,  when 
the  effects  came  afterward  to  be  complicated  by  the  scarcity  of  food, 
would  have  ended  in  a  still  more  formidable  crisis  than  was  experi- 
enced in  the  years  immediately  following.  In  the  poorer  countries 
of  Europe,  the  rage  for  railway  construction  might  have  had  worse 
consequences  than  in  England,  were  it  not  that  in  those  countries 
such  enterprises  are  in  a  great  measure  carried  on  by  foreign  capi- 
tal. The  railway  operations  of  the  various  nations  of  the  world 
may  be  looked  upon  as  a  sort  of  competition  for  the  overflowing 
capital  of  the  countries  where  profit  is  low  and  capital  abundant,  as 
England  and  Holland.  The  English  railway  speculations  are  a 
straggle  to  keep  our  annual  increase  of  capital  at  home ;  those  of 
foreign  countries  are  an  effort  to  obtain  it.* 

"It  already  appears  from  these  considerations  that  the  conver- 
sion of  circulating  capital  into  fixed,  whether  by  railways,  or  manu- 
factories, or  ships,  or  machinery,  or  canals,  or  mines,  or  works  of 
drainage  and  irrigation,  is  not  likely,  in  any  rich  country,  to  di- 
minish the  gross  produce  or  the  amount  of  employment  for  labor. 
How  much,  then,  is  the  case  strengthened,  when  we  consider  that 
these  transformations  of  capital  are  of  the  nature  of  improvements 
in  production,  which,  instead  of  ultimately  diminishing  circulating 

*  It  is  hardly  needful  to  point  out  how  fully  the  remarks  in  the  text 
have  been  verified  by  subsequent  facts.  The  capital  of  the  country,  far 
from  having  been  in  any  degree  impaired  by  the  large  amount  sunk  in  rail- 
way  construction,  was  soon  again  overflowing. 


U  CAPITAL  AND  POPULATION. 

capital,  are  the  necessary  conditions  of  its  increase ;  since  they  alone 
enable  a  country  to  possess  a  constantly  augmenting  capital,  with- 
out reducing  profits  to  the  rate  which  would  cause  accumulation  to 
stop !  There  is  barely  any  increase  of  fixed  capital  which  does  not 
enable  the  country  to  contain  eventually  a  larger  circulating  capital 
than  it  otherwise  could  possess  and  employ  within  its  own  limits ; 
for  there  is  hardly  any  creation  of  fixed  capital  which,  when  it 
proves  successful,  does  not  cheapen  the  articles  on  which  wages  are 
habitually  expended. 

"Nevertheless,  I  do  not  believe  that,  as  things  are  actually  trans- 
acted, improvements  in  production  are  often,  if  ever,  injurious,  even 
temporarily,  to  the  laboring  classes  in  the  aggregate.  They  would 
be  so  if  they  took  place  suddenly  to  a  great  amount,  because  much 
of  the  capital  sunk  must  necessarily  in  that  case  be  provided  from 
funds  already  employed  as  circulating  capital.  But  improvements 
are  always  introduced  very  gradually,  and  are  seldom  or  never 
made  by  withdrawing  circulating  capital  from  actual  production, 
but  are  made  by  the  employment  of  the  annual  increase.  There  are 
few,  if  any ^  examples  of  a  great  increase  of  fixed  capital^  at  a  time 
and  place  where  circulating  capital  was  not  rapidly  increasing  like- 
wise. It  is  not  in  poor  or  backward  countries  that  great  and  costly 
improvements  in  production  are  made.  To  sink  capital  in  land  for 
a  permanent  return,  to  introduce  expensive  machinery,  are  acts 
involving  immediate  sacrifice  for  distant  objects,  and  indicate,  in 
the  first  place,  tolerably  complete  security  of  property;  in  the  sec- 
ond, considerable  activity  of  industrial  enterprise ;  and,  in  the  third, 
a  high  standard  of  what  has  been  called  the  '  effective  desire  of  ac- 
cumulation ' — which  three  things  are  the  elements  of  a  society  rap- 
idly progressive  in  its  amount  of  capital.  Although,  therefore,  the 
laboring  classes  must  suffer,  not  only  if  the  increase  of  fixed  capital 
takes  place  at  the  expense  of  circulating,  but  even  if  it  is  so  large 
and  rapid  as  to  retard  that  ordinary  increase  to  which  the  growth 
of  population  has  habitually  adapted  itself;  yet,  in  point  of  fact, 
this  is  very  unlikely  to  happen,  since  there  is  probably  no  country 
whose  fixed  capital  increases  in  a  ratio  more  than  proportional  to 
its  circulating.  If  the  whole  of  the  railways  which,  during  the  spec- 
ulative madness  of  1845,  obtained  the  sanction  of  Parliament,  had 
been  constructed  in  the  times  fixed  for  the  completion  of  each,  this 
improbable  contingency  would,  most  likely,  have  been  realized; 


FIXED  CAPITAL.  75 

but  this  very  case  has  afforded  a  striking  example  of  the  difficulties 
which  oppose  the  diversion  into  new  channels  of  any  considerable 
portion  of  the  capital  that  supplies  the  old ;  difficulties  generally 
much  more  than  sufficient  to  prevent  enterprises  that  involve  the 
sinking  of  capital  from  extending  themselves  with  such  rapidity  as 
to  Impair  the  sources  of  the  existing  employment  for  labor. 

"  To  these  considerations  must  be  added  that,  even  if  improve- 
ments did  for  a  time  decrease  the  aggregate  produce  and  the  circu- 
lating capital  of  the  community,  they  would  not  the  less  tend,  in 
the  long  run,  to  augment  both.  They  increase  the  return  to  capital ; 
and  of  this  increase  the  benefit  must  necessarily  accrue  either  to  the 
capitalist  in  greater  profits,  or  to  the  customer  in  diminished  prices ; 
affording  in  either  case  an  augmented  fund  from  which  accumula- 
tion may  be  made,  while  enlarged  profits  also  hold  out  an  increased 
inducement  to  accumulation." — (MiU,  Book  IV,  chapter  v,  sections 
1  and  3.) 

One  criticism  is  perhaps  advisable  on  tlie  last  quota- 
tion. Mill  says,  "  There  are  few,  if  any,  examples  of  a 
great  increase  of  fixed  capital  at  a  time  and  place  where 
circulating  capital  was  not  rapidly  increasing  likewise." 
As  he  defines  capital,  this  is  hardly  true :  using  the  word 
according  to  Ricardo,  it  is  true,  because,  as  I  have  shown, 
the  transfer  of  dead  circulating  capital  to  the  fixed  form 
is  the  cause  of  an  additional  amount  of  dead  circulating 
capital  being  also  transferred  to  the  fund  of  active  circu- 
lating capital,  and  that  it  is  true  in  this  sense  is  an  impor- 
tant verification  of  the  principles  here  advanced. 

The  immediate  effect  of  the  creation  of  fixed  capital 
in  sustaining  profits  by  its  depletion  of  dead  stock  might 
seem  to  be  partially  counteracted  by  its  withdrawing 
laborers  from  the  production  of  circulating  stock.  The 
greater  competition  for  labor  resulting,  undoubtedly  tends 
to  raise  proportional  wages,  and  would  do  so  were  it  not 
that  the  demand  for  productive  and  unproductive  con- 
sumption remaining  the  same  while  the  supply  of  com- 


76  CAPITAL  AND  POPULATION 

modities  to  be  consumed  being,  by  the  supposition,  de- 
creased, the  relative  value  of  labor  is  lowered  as  compared 
with  other  commodities,  fixed  capital  excepted. 

The  case  is  the  same  when  previously  unemployed 
labor  is  used  in  the  creation  of  fixed  capital ;  this  necessi- 
tates an  increase  in  the  demand  for  productive  and  unpro- 
ductive consumption  together,  while  there  is  no  increase 
in  the  supply  of  commodities  to  be  consumed.  This  can 
only  result  in  a  fall  in  proportional  wages  and  increase  of 
the  rate  of  profit.  This  is  what  always  occurs  during  the 
periods  when  fixed  capital  is  being  created,  as,  even  when 
it  diverts  labor  from  other  production,  other  production 
utilizes  the  unemployed  labor  of  the  community.  As 
the  process,  however,  causes  a  constant  decline  in  the 
relative  value  of  fixed  capital,  such  periods  of  inflated 
prosperity  and  activity  are  soon  brought  to  an  end  by  the 
creation  of  fixed  property  ceasing  to  be  profitable. 


CHAPTEE  Y. 


PANICS. 


That  the  current  explanations  of  panics  are  not  very 
satisfactory,  will  be  conceded  by  most  students  of  our 
science.  We  have  seen  already  that  a  conclusive  test 
exists,  and  can  be  applied,  to  disprove  the  most  common 
and  popular  one  advanced,  viz.,  that  they  are  due  to  the 
depletion  of  capital  resulting  from  the  waste  and  extrava- 
gance of  the  prosperous  times  that  precede  them.  The 
popular  apprehension  of  the  subject  is  that  they  are 
mainly  due  to  this  cause,  and  the  mass  of  their  readers 
peruse  with  approval  the  diatribes  of  our  newspaper 
economists,  denouncing  expenditure  both  public  and 
private.  Such  readers  are  very  sure  that,  individually, 
they  increase  their  incomes  through  saving,  and  lessen 
them  through  spending ;  and  it  is  naturally  hard  for 
them  to  understand  why  the  same  is  not  true  of  them- 
selves collectively. 

Economists,  however,  being  somewhat  more  given  to 
verifying  theory  by  fact,  have,  to  a  very  considerable 
extent,  recognized  that  the  seasons  of  "  waste  and  ex- 
travagance," being  also  those  of  great  productive  effi- 
ciency, are,  despite  the  large  expenditure,  the  seasons  in 
which  alone  the  community  saves  and  adds  to  its  wealth. 
Accepting  the  authority  of  Mill  and  Eicardo,  that  in- 


78  CAPITAL  A'ND  POPULATIOK 

crease  of  wealth  must  lead  to  an  increase  of  the  wages- 
fund  and  of  production,  they  recognize  the  discrepancy 
of  theory  and  fact,  and  attempt  to  account  for  it  mainly 
by  an  endeavor  to  explain  away  the  fact.  They  say  that 
it  is  not  wealth,  but  only  a  part  of  wealth,  that  employs 
labor,  and  that  the  decrease  of  employment  is  due  to  the 
depletion  of  such  part  (circulating  capital)  by  a  diversion 
of  the  funds, that  should  have  flowed  into  it, to  permanent 
investment  (fixed  capital).  But  we  have  already  seen  that 
this  explanation  is  the  reverse  of  true,  as  not  the  whole 
of  circulating  capital,  but  only  a  part  of  it,  employs  labor, 
and  that  such  part  is  not  only  relatively  but  absolutely 
the  smaller,  population  remaining  the  same,  when  circu- 
lating capital  in  gross  is  the  greatest ;  and  we  have  also 
seen  that  the  creation  of  fixed  capital,  by  decreasing  dead 
stock,  always  tends  to  a  corresponding  increase  of  the 
active  stock  of  circulating  capital,  or  of  the  wages-fund. 
It  must,  therefore,  be  acknowledged  that,  on  the  occur- 
rence of  a  crisis,  the  funds  physically  availaMe  for  the 
employment  of  labor,  and  the  material  wealth  of  the  com- 
munity in  every  form,  are  greater  than  at  other  times. 

Mill  himself  is  wiser  than  his  followers.  Confused 
though  he  was  by  his  ambiguous  use  of  the  term  "  capital," 
he  nevertheless  perceived  that  accumulations  were  great- 
est just  before  a  crisis,  but,  deceived  by  his  erroneous 
use  of  the  term  "  market,"  he  was  unwilling  to  acknowl- 
edge, in  apparent  contradiction  to  Say,  that  accumulation 
tended  to  prevent  exchanges  ;  and  he  attempts  to  explain 
crises  as  referable  solely  to  the  action  of  the  credit  sys- 
tem.    In  Book  III,  chapter  xiv,  section  4,  he  says : 

"  But  it  is  a  great  error  to  suppose,  with  Sismondi,  that  a  com- 
mercial crisis  is  the  effect  of  a  general  excess  of  production."  (It 
is  excess  of  accumulation,  not  of  production,  contended  against  in 


PAOTOS.  Y9 

this  treatise,  and  practically  contended  for  by  Mill.)  "It  is  simply 
the  consequence  of  an  excess  of  speculative  purchases.  It  is  not  a 
gradual  advent  of  low  prices,  but  a  sudden  recoil  from  prices  ex- 
travagantly high.  Its  immediate  cause  is  a  contraction  of  credit, 
and  the  remedy  is  not  a  diminution  of  supply^  but  the  restoration 
of  confidence." 

Nothing  could  be  more  unequivocal  than  this,  and 
nothing  could  be  more  in  contradiction  to  it  than  the 
following  passage  in  Book  lY,  chapter  iv,  sections  5 
and  6: 

"  What,  then,  are  these  counteracting  circumstances,  which,  in 
the  existing  state  of  things,  maintain  a  tolerably  equal  struggle 
against  the  downward  tendency  of  profits,  and  prevent  the  great 
annual  savings  which  take  place  in  this  country  from  depressing 
the  rate  of  profit  much  nearer  to  that  lowest  point  to  which  it  is 
always  tending,  and  which,  left  to  itself,  it  would  so  promptly  at- 
tain ?     The  resisting  agencies  are  of  several  kinds. 

"  First  among  them  we  may  notice  one  which  is  so  simple  and 
so  conspicuous  that  some  political  economists,  especially  M.  de 
Sismondi  and  Dr.  Chalmers,  have  attended  to  it  almost  to  the 
exclusion  of  all  others.  This  is,  the  waste  of  capital  in  periods  of 
overtrading  and  rash  speculation,  and  in  the  commercial  revulsions 
by  which  such  times  are  always  followed.  It  is  true  that  a  great 
part  of  what  is  lost  at  such  periods  is  not  destroyed,  but  merely 
transferred,  like  a  gambler's  losses,  to  more  successful  speculators. 
But  even  of  these  mere  transfers  a  large  portion  is  always  to 
foreigners,  by  the  hasty  purchase  of  unusual  quantities  of  foreign 
goods  at  advanced  prices.  And  much  also  is  absolutely  wasted. 
Mines  are  opened,  railways  or  bridges  made,  and  many  other  works 
of  uncertain  profit  commenced,  and  in  these  enterprises  much  capi- 
tal is  sunk  which  yields  either  no  return,  or  none  adequate  to  the 
outlay.  Factories  are  built  and  machinery  erected  beyond  what 
the  market  requires,  or  can  keep  in  employment.  Even  if  they  are 
kept  in  employment,  the  capital  is  no  less  sunk ;  it  has  been  con- 
verted from  circulating  into  fixed  capital,  and  has  ceased  to  have 
any  influence  on  wages  or  profits."  (We  have  seen  that  Mill  is 
mistaken  in  assuming  that  the  amount  of  fixed  capital  has  no  influ- 


80  CAPITAL  AKD  POPULATIOK 

ence  on  wages.)  "  Besides  this,  there  is  a  great  unprodtcctiDe  con- 
sumption  of  capital,  during  the  stagnation  which  follows  a  period  of 
general  overtrading.  JEstadlishments  are  shut  up,  or  Tcept  worTcing 
without  any  profit,  hands  are  discharged,  and  numbers  of  persons  in 
all  ranlcs,  being  deprived  of  their  income,  and  thrown  for  support  on 
their  savings,  find  themselves,  after  the  crisis  has  passed  away,  in 
a  condition  of  more  or  less  impoverishment.  Such  are  the  effects  of 
a  commercial  revulsion :  and  that  such  revulsions  are  almost  peri- 
odical is  a  consequence  of  the  'very  tendency  of  profits  which  we  are 
considering.  By  the  time  a  few  years  have  passed  over  without  a 
crisis,  so  much  additional  capital  has  been  accumulated  that  it  is  no 
longer  possible  to  invest  it  at  the  accustomed  profit :  all  public  secu- 
rities rise  to  a  high  price,  the  rate  of  interest  on  the  best  mercan- 
tile security  falls  very  low,  and  the  complaint  is  general  among 
persons  in  business  that  no  money  is  to  be  made.  Does  not  this 
demonstrate  how  speedily  profit  would  be  at  the  minimum,  and  the 
stationary  condition  of  capital  would  be  attained,  if  these  accumu- 
lations went  on  without  any  counteracting  principle?  But  the 
diminished  scale  of  all  safe  gains  inclines  persons  to  give  a  ready 
ear  to  any  projects  which  hold  out,  though  at  the  risk  of  loss,  the 
hope  of  a  higher  rate  of  profit ;  and  speculations  ensue,  which,  with 
the  subsequent  revulsions,  destroy  or  transfer  to  foreigners  a  con- 
siderable amount  of  capital,  produce  a  temporary  rise  of  interest 
and  profit,  make  room  for  fresh  accumulations,  and  the  same  round 
is  recommenced. 

"  This,  doubtless,  is  one  considerable  cause  which  arrests  profits 
in  their  descent  to  the  minimum,  by  sweeping  away,  from  time  to 
time,  a  part  of  the  accumulated  mass  by  which  they  are  forced 
down.  But  this  is  not,  as  might  be  inferred  from  the  language  of 
some  writers,  the  principal  cause.  If  it  were,  the  capital  of  the 
country  would  not  increase ;  but  in  England  it  does  increase  greatly 
and  rapidly.  This  is  shown  by  the  increasing  productiveness  of 
almost  all  taxes,  by  the  continual  growth  of  all  the  signs  of  national 
wealth,  and  by  the  rapid  increase  of  population,  while  the  condi- 
tion of  the  laborers  is  certainly  not  declining,  but,  on  the  whole, 
improving.  These  things  prove  that  each  commercial  revulsion, 
however  disastrous,  is  very  far  from  destroying  all  the  capital  which 
has  been  added  to  the  accumulations  of  the  country  since  the  last 
revulsion  preceding  it,  and  that  invariably  room  is  either  found  or 


PANICS.  81 

made  for  the  profitable  employment  of  a  perpetually  increasing 
capital,  consistently  with  not  forcing  down  profits  to  a  lower 
rate. 

"  This  brings  ns  to  the  second  of  the  counter-agencies,  namely, 
improvements  in  production.  These  evidently  have  the  effect  of 
extending  what  Mr.  "Wakefield  terms  the  field  of  employment,  that 
is,  they  enable  a  greater  amount  of  capital  to  be  accumulated  and 
employed  without  depressing  the  rate  of  profit — provided  always 
that  they  do  not  raise  to  a  proportional  extent  the  habits  and  re- 
quirements of  the  laborer. 

"  If  the  laboring  class  gain  the  full  advantage  of  the  increased 
cheapness — in  other  words,  if  money-wages  do  not  fall — profits  are 
not  raised,  nor  their  fall  retarded.  But  if  the  laborers  people  up  to 
the  improvement  of  their  condition,  and  so  relapse  to  their  previous 
state,  profits  will  rise.  All  inventions  which  cheapen  any  of  the 
things  consumed  by  the  laborers,  unless  their  requirements  are 
raised  in  an  equivalent  degree,  in  time  lower  money-wages ;  and,  by 
doing  so,  enable  a  greater  capital  to  be  accumulated  and  employed 
before  profits  fall  back  to  what  they  were  previously." 

When  Mill  says  that  "  the  remedy  is  not  a  diminution 
of  supply,"  he  is  right,  if  by  remedy  he  means  preven- 
tion. The  evil  has  not  been  caused  by  any  excess  of 
production,  but  by  the  non-utilization,  in  either  productive 
or  unproductive  consumption,  of  too  great  a  portion  of 
what  has  been  produced.  If  he  means  that  it  is  not  the 
proper  remedy  after  the  crisis  has  occurred,  he  is  right 
only  if  he  means  to  advocate,  which  he  is  far  from  doing, 
the  absolute  destruction  or  unproductive  consumption  of 
excessive  dead  stock.  But,  as  this  will  seldom  take  place 
naturally,  the  diminution  of  supply,  undesirable  as  it  is, 
is  the  only  remedy  the  undisturbed  action  of  economic 
law  supplies,  and  the  sole  means  by  which  the  readjust- 
ment of  capital  to  population  is  in  practice  effected. 
There  is  too  self-evident  an  appeal  to  facts  for  this  to  be 
denied,  nor  does  Mill  deny  it,  contradictory  as  it  is  to  his 


82  CAPITAL  AND  POPULATION. 

assertion,  but  explicitly  asserts  it  in  the  passage  which  I 
have  italicized  in  the  last  quotation. 

But  I  further  assert  that  credit  is  never  a  cause  of 
crises  at  all,  but  only  an  accelerating  influence,  by  which 
I  mean  that,  as  prices  would  then  be  stationary  or  nearly 
so,  a  crisis  could  never  occur  from  any  extension  of  credit 
not  accompanied  by  over-accumulation ;  while  the  latter 
would  periodically  produce  seasons  of  industrial  inactivity, 
even  if  business  were  conducted  on  a  strictly  cash  basis. 
In  saying  this,  I,  of  course,  do  not  mean  to  assert  that 
credit  is  without  influence.  Its  influence  is  undeniably 
great,  and  the  larger  part  of  .the  losses  society  sustains 
through  its  enforced  periods  of  industrial  inactivity  must 
be  attributed  to  it.  All  that  I  contend  for  is,  that  it 
must  be  considered  only  as  intensifying  effects  due  to 
over-accumulation,  and  that  would  not  occur  at  all  with- 
out over-accumulation. 

Gold  and  silver,  leaving  out  of  view  their  use  as  com- 
modities, subserve  a  double  purpose.  They  act  as  the 
standard  of  value,  and  as  the  medium  of  exchange.  If 
they  had  never  been  supplemented  by  credit,  their  value 
would  be  many  times  greater  than  it  now  is. 

"Having  now  formed  a  general  idea  of  the  modes  in  which 
credit  is  made  available  as  a  substitute  for  money,  we  have  to  con- 
sider in  what  manner  the  use  of  these  substitutes  affects  the  value 
of  money,  or,  what  is  equivalent,  the  prices  of  commodities.  It  is 
hardly  necessary  to  say  that  the  permanent  value  of  money — the 
natural  and  average  prices  of  commodities — are  not  in  question  here. 
These  are  determined  by  the  cost  of  producing  or  of  obtaining  the 
precious  metals.  An  ounce  of  gold  or  silver  will,  in  the  long  run, 
exchange  for  as  much  of  every  other  commodity  as  can  be  produced 
or  imported  at  the  same  cost  with  itself;  and  an  order  or  note  of 
hand,  or  bill  payable  at  sight,  for  an  ounce  of  gold,  while  the  credit 
of  the  giver  is  unimpaired,  is  worth  neither  more  nor  less  than  the 
gold  itself." — (Mill,  Book  III,  chapter  xii,  section  1.) 


PANICS.  83 

Nevertheless,  credit  does  permanently  affect  the  value 
of  gold,  because  it  affects  the  amount  needed.  Every 
time  (other  things  remaining  the  same)  credit  supplies  the 
function  of  gold  in  exchange,  it  depresses  its  value.  If 
the  value  sinks  below  the  cost  of  production,  the  value  of 
gold  is  not  thereby  eventually  raised,  but  the  cost  of  pro- 
duction is  itself  lowered  by  the  abandonment  of  some  of 
the  poorer  mines.  If  credit  did  not  exist,  we  should  have 
more  gold  and  silver,  and  they  would  be  of  greater  value. 
While  their  production  would  have  been  greatly  stimu- 
lated, and  while  we  would  possess  several  times  the 
amount  we  do  now,  the  money  prices  of  other  articles 
would  be  but  a  small  fraction  of  what  they  are  now.  The 
introduction  of  credit  has  rendered  unnecessary  a  great 
amount  of  labor  that  would  otherwise  have  been  expended 
in  their  production,  and  has  saved  a  very  considerable 
loss  that  would  have  occurred  through  their  greater  de- 
struction by  accident  and  wear.  It  has  also  yielded  a 
further  gain  in  the  convenience,  or  lessened  labor,  by 
means  of  which  exchanges  are  effected. 

What  concerns  us  more  nearly,  however,  is  the  effect 
of  credit  upon  prices,  and  through  them  upon  production, 
consumption,  and  accumulation.  Credit,  no  matter  what 
its  form,  does  not  increase  capital,  but  it  does  increase 
the  availability  or  effectiveness  of  capital.  It  facilitates 
exchange,  stimulates  production,  and  places  the  existent 
capital  in  the  hands  of  those  most  disposed  to  make  in- 
vestments— thus  leading  to  a  more  rapid  accumulation. 
But,  in  the  end,  supposing  the  same  state  of  civilization 
to  be  reached  without  it  as  with  it,  it  decreases  the  pos- 
sible accumulation  of  capital,  both  because  of  the  smaller 
amounts  of  the  precious  metals  that  the  community  will 
accumulate,  and  because  a  smaller  amount  of  more  avail- 


84  CAPITAL  AND  POPULATION. 

able  capital  will  suffice  for  the  needs  of  production — tliat 
is,  under  the  credit  system — as  capital  will  be  more  ac- 
tive, a  smaller  amount  will  be  needed ;  and  the  normal 
ratio  of  capital  to  population  will  be  lessened.  Besides 
the  economies  already  noticed,  the  credit  system  confers 
a  benefit  upon  society  in  that  it  lessens  the  relative 
amount  of  savings  and  investments  that  the  growing 
needs  of  society  demand. 

If  gold  and  silver  were  our  only  mediums  of  exchange, 
the  fluctuations  in  prices,  that  depend  upon  their  relative 
amount,  would  be  greater  than  they  now  are.  Any  in- 
creased demand  upon  them  as  mediums  of  exchange  may 
now  be  partly  met  by  an  extension  of  credit,  or  an  im- 
provement in  its  methods  which  may  carry  the  com- 
munity over  the  period  of  their  relative  scarcity  without 
much  depressing  prices.  The  production  of  the  precious 
metals  is  very  variable  in  amount,  but  the  effect  of  their 
greater  or  less  production  upon  prices  is  largely  modified 
by  the  credit  system,  because  it  now  performs  the  greater 
portion  of  their  functions,  and  in  so  doing  possesses  an 
elasticity  which  specie  does  not,  because  the  latter  can 
only  increase  in  its  amount,  when  the  demand  for  it  is 
great,  through  importation  of  the  precious  metals  or  by 
the  slow  process  of  greater  activity  in  mining,  whereas 
credit  expands  of  itself  with  every  fresh  demand  upon  it 
as  a  medium  of  exchange,  without  much  affecting  prices. 
The  fluctuations  in  prices,  that  depend  upon  the  greater 
or  less  activity  of  exchanges,  would  be  much  less  if  we 
had  no  system  of  credit.  The  demand  upon  gold  and 
silver,  if  we  depended  upon  them  alone,  resulting  from 
any  increase  of  prices  or  unusual  activity  of  exchanges 
would  be  immediately  felt,  and  the  value  of  the  precious 
metals  relative  to  other  commodities  increased,  which  is 


PANICS.  85 

to  say  that  the  prices  of  other  commodities  would  soon 
fall,  and  the  activity  of  exchanges  be  checked ;  whereas 
under  the  credit  system  the  increase  of  credit  that  always 
accompanies  an  increase  in  the  activity  of  exchanges 
helps  to  sustain  prices.  As  the  fluctuations  that  depend 
upon  the  activity  of  exchanges  are  vastly  more  numerous 
than  those  depending  upon  the  abundance  or  scarcity  of 
the  precious  metals,  it  is  evident  that  fluctuations  are  very 
much  more  frequent,  sudden,  and  greater  in  amount, 
under  the  credit  system. 

While  it  allows  greater  latitude  for  fluctuation  in 
prices,  any  extension  of  credit,  no  matter  what  its  form 
— whether  it  be  an  increase  of  currency,  an  extension  of 
bank  credits,  or  the  greater  facility  with  which  time-pur- 
chases are  made — ^raises  the  prices  of  all  commodities,  not 
only  by  the  creation  of  a  greater  demand,  but  by  its  dis- 
turbance of  the  ratio  of  the  amount  of  the  commodities 
to  the  amount  of  their  medium  of  exchange.  That  is  to 
say,  the  increase  of  credit  tends  to  raise  prices  by  depre- 
ciating the  value  of  the  medium  through  which  commod- 
ities are  exchanged,  and  also  to  raise  them  through  the 
stimulation  of  demand  that  results  from  the  additional 
facility  it  gives  to  exchange  and  production. 

Any  rise  in  prices  is  primarily  and  mainly  a  benefit 
to  the  capitalist,  who  possesses  the  commodity  enhanced 
in  value.  It  is  a  profit  to  him  additional  to  the  legitimate 
return  for  the  use  of  capital  he  was  before  receiving  for 
producing  or  transferring  that  commodity.  Such  profit 
represents  no  gain  of  any  kind  to  the  community,  but 
only  a  transfer  from  the  pocket  of  the  consumer  to  the 
pocket  of  the  capitalist  exactly  equal  to  the  increase  in 
the  price  of  the  commodity.  A  general  rise  in  prices 
simply  means  that  capital  receives  a  larger,  and  labor  a 


86  CAPITAL  AND  POPULATION". 

smaller,  proportion  of  the  total  production,  tlian  thej  were 
receiving  before  it  took  place.  As  such  rise  always  stim- 
ulates production,  the  amount  to  be  divided  is  greater, 
and  the  absolute  share  of  the  laborers  may  be,  and  usu- 
ally is,  larger  than  before  ;  but  their  relative  share  is  less. 
Capital  receives  the  larger  share  of  the  benefit  of  the  in- 
creased activity. 

We  see,  therefore,  that  the  effect  of  the  credit  system, 
when  it  commences  to  act  upon  a  normal  ratio  of  capital 
to  population,  is  to  stimulate  prices  and  increase  profits, 
and  to  hasten  the  over-accumulations  that  are  inevitably 
made  from  excessive  profits,  and  which  necessitate  a  fol- 
lowing period  of  inactivity  and  decline. 

But  it  has  a  further  effect.  ISTot  only  does  the  credit 
system  shorten  the  rhythm  of  activity  and  idleness,  but  it 
renders  the  fluctuations  more  variable  in  their  effect  upon 
individuals.  If  every  article  were  paid  for  by  its  purchaser 
at  the  moment  of  purchase,  the  benefits  of  a  general  rise 
in  prices  would  be  distributed  among  all  the  holders  of 
property,  each  of  whom  would  gain  a  slight  increase  of 
wealth ;  but,  when  the  articles  enhanced  in  value  have 
certain  fixed  claims  against  them,  the  proportional  benefit 
to  their  possessors  is  thereby  increased.  A  rise  in  price 
of  ten  per  cent  gives  an  extra  profit  of  ten  per  cent  on 
articles  fully  paid  for  ;  but  if  half  the  purchase-money  is 
yet  due,  the  profit  is  twenty  per  cent  on  the  possessor's 
real  interest  in  them.  "When  credits  are  very  much  ex- 
tended, a  rise  in  prices,  instead  of  making  small  additions 
to  many  incomes,  makes  larger  additions  to  fewer  incomes. 
The  larger  sudden  additions  to  incomes  are,  the  larger  will 
be  the  proportion  of  them  that  will  be  invested,  and  the 
smaller  will  be  the  increase  of  expenditure.  Thus,  again, 
we  find  that  credit  hastens  over-accumulation. 


PAMCS.  87 

Having  now  reached  the  top  of  the  wave,  we  will  fol- 
low it  over  the  crest  to  its  decline.  Higher  prices  can 
only  be  maintained  when  they  are  the  result  of  perma- 
nent causes,  and  such  causes  must  not  only  be  permanent 
but  world-wide.  There  are  such  causes,  and  they  can  all 
be  resolved  into  the  permanent  increase  of  the  proportion 
which  the  medium  of  exchange,  whether  gold  or  credit, 
bears  to  the  amount  of  commodities  seeking  exchange. 
The  world  has  experienced  such  an  increase  for  several 
centuries  and  still  continues  to  experience  it.  It  has 
been,  and  is,  both  a  cause  and  result  of  advancing  civili- 
zation. But  any  permanent  advance  in  prices  must  not 
only  proceed  from  permanent  causes,  but  from  causes  that 
equally  affect  those  portions  of  the  civilized  world  that 
exchange  any  considerable  proportion  of  their  production 
with  others.  When  any  single  nation,  by  increasing  its 
medium  of  exchange,  or  from  any  other  cause,  raises  the 
money  prices  of  its  commodities  more  than  its  neighbors, 
it  immediately  places  itself  at  a  disadvantage  as  compared 
with  them  ;  and  they  are  enabled  to  undersell  it  in  both 
its  own  and  foreign  markets.  The  productions  of  a  na- 
tion so  situated  must  accumulate  within  its  own  borders. 
It  will  also  accumulate  foreign  productions,  which  will 
commence  to  occupy  its  home  market.  Such  a  nation  is 
finally  forced  to  reduce  its  production.  Until  it  does  so 
its  imports  will  exceed  its  exports ;  or,  in  other  words,  it 
will  borrow  of  other  nations,  and  must  pay  a  portion  of 
its  income  to  them  as  interest.  If  it  does  not  pay  the 
balance  due,  in  gold  and  silver,  and  its  creditors  do  not 
choose  to  make  a  permanent  investment  of  their  advances, 
the  rate  of  exchange,  or  the  equation  of  international  de- 
mand, will  be  against  it,  which  again  places  it  at  a  com- 
mercial disadvantage.     If  they  do  permanently  invest 


88  CAPITAL  AND  POPULATION. 

such  advances,  foreign  capital  is  brought  into  competition 
with  home  capital  at  the  very  time  that  excessive  profits 
and  investments  have  made  capital  superabundant.  The 
only  escape  from  the  inevitable  result  of  this  state  of 
things  is  the  general  reduction  of  prices.  The  higher 
and  more  rapid  their  rise  has  been,  the  lower  and  more 
sudden  their  fall  must  be. 

But  this  fall  is  no  more  a  loss  to  the  community  than 
their  rise  was  a  gain.  The  property  of  the  community 
is  exactly  what  it  was  when  every  one  was  apparently 
wealthy.  Like  the  rise,  the  decline  is  a  mere  transfer  of 
values ;  but  now  it  is  the  consumer  who  gains,  and  the 
capitalist  who  loses.  The  only  loss  to  the  nation  is  on 
the  relatively  small  portion  of  the  production  it  exports, 
as  its  gain  in  the  rise  was  also  on  its  exports.  This  loss 
is  trivial,  and  is  balanced  by  a  previous  fictitious  gain. 
The  real  injury  to  the  community  is  the  very  serious  loss 
of  its  labor,  forced  to  be  idle  during  the  period  of  depres- 
sion. 

The  elTect  of  credit  on  this  transfer  of  value  is  to  dis- 
tribute the  loss  in  a  manner  very  different  from  its  natu- 
ral proportions.  If  there  were  no  indebtedness,  the  losses 
consequent  upon  the  fall  in  prices  would  be  distributed 
jpro  rata  among  all  the  possessors  of  commodities.  But 
if,  as  before  supposed,  these  possessors  were  indebted  for 
haK  the  purchase  value  of  their  goods,  the  loss  to  them 
is  doubled,  while  the  lenders  lose  nothing  unless  the  de- 
cline is  so  great  as  to  invalidate  their  security. 

If  this  loss  were  distributed  as  evenly  as  it  would  be 
if  the  credit  system  did  not  exist,  it  would  cause  little 
suffering  and  no  alarm,  because  no  one  could  become  in- 
solvent. The  worst  that  any  would  suffer,  would  be  a 
slight  reduction  of  capital  and  income,  to  which  they 


PANICS.  89 

could  readily  adjust  their  affairs.  But  the  loss  being  con- 
centrated upon  a  few,  who  are  indebted  in  certain  fixed 
sums,  it  renders  so  many  of  them  insolvent,  that  lenders, 
becoming  alarmed  for  the  adequacy  of  their  security, 
contract  credits  as  much  and  as  suddenly  as  they  possibly 
can.  Kow,  this  process  not  only  forces  a  further  decline 
in  prices,  by  stopping  all  the  demand  that  proceeds  from 
investment,  but  also  by  forcing  holders  of  property  to 
sell  at  any  price,  in  order  to  obtain  means  for  the  repay- 
ment of  indebtedness  for  which  they  can  no  longer  ob- 
tain credit.  It  also  forces  prices  down,  by  lessening  the 
proportion  of  the  medium  of  exchange  to  the  g,mount  of 
commodities  seeking  exchange.  The  fearful  disturbance 
of  the  social  organism  that  the  severity  of  this  process 
causes  has  been  too  vividly  experienced  by  us  all  to  need 
further  elucidation.  We  have  merely  to  remark  that  the 
effect  of  the  credit  system  is  to  depress  prices  in  a  time 
of  depression  more  than  they  otherwise  would  be,  as  well 
as  to  raise  them  in  times  of  prosperity  higher  than  they 
would  otherwise  go.  JSTeither  their  rise  nor  fall  is  a  gain 
or  a  loss  to  the  community;  but  the  widening  of  the 
fluctuations  is  an  evil,  in  that  it  increases  the  idleness,  or 
loss  of  labor,  which  is  the  real  and  only  injury  that  panics 
cause. 

But  prices  in  any  nation  can  no  more  be  kept  perma- 
nently below  prices  in  other  nations  than  they  can  be  kept 
above  them ;  nor  can  they  long  be  kept  at  a  point  that 
forbids  profit.  The  loss  being  merely  a  transfer  from  the 
property  to  the  consuming  classes,  the  consuming  power  of 
the  latter,  though  absolutely  less,  is,  relatively  to  produc- 
tion, greater  than  before.  Over-accumulations  cease — 
profits  being  too  small  to  allow  them  to  be  made.  Exports 
once  more  exceed  imports ;  the  suffering  nation,  again 


90  CAPITAL  AND  POPULATION 

able  to  produce  as  cheaply  as,  or  cheaper  than,  its  neigh- 
bors, repays  its  foreign  indebtedness,  and  resumes  its  con- 
trol of  home  and  foreign  markets,  and  the  rate  of  ex- 
change and  the  equation  of  international  demand  are  again 
in  its  favor.  The  nation  re-enters  upon  a  period  of  pros- 
perity and  advancing  prices,  in  which  it  proceeds  with 
accelerating  progress,  again  to  suffer  from  its  economic 
mistake  of  endeavoring  to  be  richer  than  economic  law 
allows. 

"We  are  now  entitled  to  state  that  panics  are  the  sud- 
den and  violent  readjustment  from  an  abnormal  to  a 
normal  ratio  of  capital  to  population.  Their  cause  is 
solely  the  disturbance  of  this  ratio.  The  only  effect  of 
the  credit  system  is  to  accelerate  the  rhythm  and  increase 
the  extent  of  the  fluctuations  above  and  below  the  point 
at  which  the  ratio  harmonizes  with  the  present  state  of 
society. 

If  the  large  profits  resulting  from  a  rise  in  prices  were 
expended  wholly  for  productive  and  unproductive  con- 
sumption, and  did  not  result  in  any  increase  of  "  dead 
stock  "  either  fixed  or  circulating,  the  rise  of  price  would 
be  maintained,  for  the  efficient  demand  would  always 
equal  the  supply,  however  great  the  latter  might  be,  and 
production  would  continue  to  be  as  profitable  as  before. 
There  would  be,  to  be  sure,  a  redistribution  of  wealth, 
but,  as  long  as  the  ratio  of  capital  to  population  was  not 
really  disturbed,  further  fluctuations  in  general  prices 
would  be  only  such  as  would  result  from  false  suppositions 
that  the  ratio  was  disturbed.  As  further  investments 
would  not  be  made,  or,  if  made,  would  continue  to  be 
profitable  because  their  amount  would  be  strictly  propor- 
tional to  the  increase  of  population,  a  collapse  of  credit, 
however  extended  it  might  be,  could  hardly  occur,  for 


PANICS.  91 

confidence  could  not  be  shaken  when  it  was  felt  that 
dead  stock  was  not  in  excess.  Such  a  balance  of  popula- 
tion and  capital  is  of  course  chimerical.  It  is  too  ideal 
a  state  of  society  to  be  hoped  for  or  expected.  It  is  quite 
within  the  province  of  reason,  however,  to  show  that  some 
approximation  to  it  is  possible,  and  that  its  full  attain- 
ment would  free  us  for  ever  from  commercial  crises. 

As  the  result  of  our  investigations,  we  are  also  enti- 
tled to  state  that  the  benefits  we  derive  from  the  credit 
system — when  the  point  has  been  reached  in  a  nation's 
history  at  which  a  tendency  to  over-accumulation  begins 
to  show  itself — can  all  be  resolved  into  the  reduction  of 
the  proportion  which  capital  normally  bears  to  population ; 
and  its  evils,  into  the  intensification  of  the  temporary 
fluctuations  it  causes  in  the  ratio  of  capital  to  population. 

The  permanent  rise  in  prices  which,  as  before  ex- 
plained, we  owe  to  the  credit  system,  may  perhaps  be  con- 
sidered as  an  exception  to  this  remark.  Any  permanent 
advance  of  the  point  about  which  prices  tend  to  fluctuate 
prolongs  the  period  of  large  profits  in  which  it  takes  place, 
without  prolonging  the  following  period  of  reaction.  It 
would  seem,  therefore,  that  it  must  also  increase  the  totality 
of  production,  and  the  augmentation  of  capital  such  in- 
crease of  production  demands  and  justifies.  We  have 
seen,  however,  that  this  is  not  an  advantage,  unless  the  total- 
ity of  unproductive  consumption  is  also  increased.  That 
it  does  this  is  not  so  clear,  but  may  still,  we  think,  be  assert- 
ed. Increase  of  production  is  always  attended  by  some 
increase  of  consumption ;  but  the  proportion  between  the 
two  is  much  less  disturbed  by  a  gradual  than  by  a  sudden 
rise  of  prices.  A  sudden  increase  of  income  will  yield  a 
larger  percentage  for  investment  than  a  gradual  one  of 
equal  extent.     The  more  gradual  it  is,  the  closer  wiU  the 


92  CAPITAL  AND  POPULATIOIT. 

increased  expenditure  approximate  to  tlie  increased  in- 
come, and,  if  it  be  very  gradual,  may  almost  or  quite 
equal  it.  Now,  this  permanent  rise  in  prices  is  very 
gradual,  having  extended  over  several  centuries,  and  it 
has  undoubtedly  been  wholly  utilized  in  unproductive 
consumption,  and  not  wasted  in  uncalled-for  saving.  But, 
if  this  explanation  is  the  true  one,  this  benefit  which  we 
derive  from  credit  is  analogous  to  the  others,  in  that  it 
results  from  an  increase  of  unproductive  consumption, 
without  any  more  than  a  corresponding  and  fit  increase  of 
capital. 

Our  principle  has  now  afforded  us  a  reasonably  f  iill 
and  accurate  explanation  of  the  cause  and  action  of  pan- 
ics as  affecting  individual  nations.  It  might  seem,  at 
first  sight,  that,  where  all  nations  advanced  with  nearly 
equal  rapidity,  and  at  the  same  time,  toward  higher 
prices  and  more  extended  credits,  the  result  would  be  a 
permanent  rise  of  prices  from  which  no  reaction  could 
possibly  follow.  Steam  and  electricity  are  making  one 
commercial  community  of  the  nations.  Economic  rela- 
tions are  now  so  intimate  and  so  sensitive,  that  we  may 
hereafter  expect  that  the  alternations  of  activity  and  stag- 
nation will  become  more  and  more  uniform,  both  in  ex- 
tent and  time,  for  all  communities.  As  two  vibrating 
chords,  when  brought  together,  tend  to  vibrate  in  unison, 
so  the  commercial  rhythms  of  separate  nations  tend  to 
uniformity  as  distances  are  annihilated.  This  uniformity 
of  rhythm,  in  proportion  as  it  is  perfect,  removes  the 
restraint  upon  each  other's  inflation  of  credit  and  prices 
which  has  been  hitherto  exercised.  But  it  never  can  be 
perfect,  and  always  will  allow  some  portion  of  the  re- 
straining influence  to  be  exerted.  Although  it  may 
lengthen  the  rhythm  of  activity  and  idleness,  it  can  never 


PANICS.  93 

destroy  it,  but  will  rather  tend  to  its  intensification.  We 
may  expect  these  states,  when  more  universal,  to  be 
longer  in  their  continuance  and  more  extreme  in  their 
intensity ;  but  they  will  continue  as  before  in  all  other 
respects.  Their  real,  indeed  their  only,  cause  is  over- 
accumulation.  The  only  difference  is,  that  the  relief  from 
their  burden  is  longer  deferred,  and  more  tedious  when 
commenced,  where  the  difficulty  of  distributing  the  over- 
accumulations  among  foreign  nations  is  enhanced.  This 
can  not  be  done  so  effectively  where  all  are  suffering,  in 
nearly  equal  degree,  from  the  same  cause. 

It  has  hitherto  been  claimed  that  a  "  general  glut " 
was  impossible  ;  that  the  world  could  not  have  too  much 
of  everything.  But  facts  are  stubborn  things,  and  some- 
thing very  like  it  has  come  to  pass.  A  general  glut  is  the 
result,  not,  as  Mill  assumes,  of  over-production,  but  of 
over-accumulation ;  and  we  have  seen,  not  only  that  this 
is  possible,  but  that  the  tendency  of  society  toward  such 
a  state  is  constant  so  long  as  it  possesses  an  imdue  pro- 
portion of  the  accumulating  class.  We  have  also  seen 
that  the  credit  system  intensifies  the  tendency  to  over- 
accumulation,  both  in  its  beneficial  effect  of  lessening  the 
necessary  proportion  of  capital  to  population  and  in  its 
evil  tendencies  of  stimulating  the  fluctuation  of  prices, 
and  confining  the  consequent  gains  and  losses  to  fewer 
individuals  without  lessening  their  amount.  All  these 
causes  act  over  the  whole  area  as  certainly  and  as  system- 
atically as  over  any  particular  portion.  The  only  differ- 
ence that  their  universal  rhythm  makes  to  any  particular 
nation  is,  that  it  takes  away,  to  the  extent  in  which  it 
occurs,  the  opportunity  of  relieving  the  home  markets 
by  exporting  the  surplus  which  is  depressing  them,  to 
other  nations  that  will  not  or  can  not  take  it  when  they 


94  CAPITAL  Al^D  POPULATION. 

are  oppressed  in  like  degree  with  a  superabundance  of 
dead  stock.  Except  as  modified  b j  this  one  circumstance, 
the  readjustment  of  capital  to  population  proceeds  exactly 
the  same  when  the  periods  of  alternating  activity  and 
stagnation  coincide  as  when  they  are  independent.  The 
cause  of  panic  and  depression  is  not  -in  the  least  altered 
by  the  periodical  coincidence  of  industrial  activity.  De- 
cline in  prices  and  production  must  follow  over-accumula- 
tion, and  collapse  of  credit  must  follow  decline  in  prices, 
so  long  as  the  consequent  transfer  of  property  from  the 
capitalist  to  the  consumer  is  at  the  expense  of  a  few 
of  the  capitalists,  instead  of  being  distributed  pro  rata 
among  them. 

The  loss  of  confidence  which  constitutes  the  essential 
nature  of  panic  as  distinguished  from  stagnation  can  only 
result  from  the  anticipation  of  a  decline  in  prices.  But 
a  decline  in  prices  can  only  be  effected  by  a  decrease  in 
the  medium  of  exchange  or  an  increase  in  the  amount  of 
commodities  to  be  exchanged  ;  the  latter  cause  can  only 
result  from  over-accumulation,  and  the  former  from  a 
destruction  or  exportation  of  the  precious  metals.  The 
fact  that  in  any  nation  prices  are  higher  than  in  the  rest 
of  the  world  will  lead  to  such  exportation,  and  also  if 
speculation  at'  any  time  should  raise  prices  above  the 
level  determined  by  the  ratio  of  commodities  to  the 
medium  of  exchange,  so  that  production  was  yielding 
more  than  its  normal  rate  of  profit,  an  exportation  of 
gold  would  take  place  sufficient  to  soon  reduce  prices 
and  profits  to  the  normal  rate.  This  fall  in  prices,  when 
anticipated,  would  cause,  undoubtedly,  some  loss  of  con- 
fidence, but,  if  at  the  time  the  proportion  of  capital  to 
population  was  not  too  large,  the  rate  of  profit  could  not 
fall  to  a  point  that  would  materially  decrease  production. 


PANICS.  95 

In  an  isolated  nation  which  neither  imported  nor  export- 
ed gold,  general  prices  would  be  wholly  governed  by  the 
increase  or  decrease  of  capital  as  compared  with  popula- 
tion. Speculation  would  affect  particular  not  general 
prices,  and  that  only  temporarily.  The  amount  of  pro- 
duction, within  certain  limits  never  practically  reached, 
would  be  strictly  inverse  to  the  amount  of  accumulation ; 
and  it  is  hardly  conceivable  that  any  disturbance  of  con- 
fidence and  credit,  not  proceeding  from  an  abnormal 
cause,  such  as  war,  could  lead  to  any  considerable  cessa- 
tion of  industry,  as  long  as  capital  continued  barely  suf- 
ficient for  the  needs  of  population.  IRothing  that  could 
be  dignified  with  the  name  of  a  commercial  crisis  could 
occur  as  long  as  production  was  sufiiciently  profitable. 
The  world  as  a  whole  must  be  considered  as  an  isolated 
nation,  and  no  disturbance  of  credit  and  confidence  can 
therefore  be  a  sufficient  cause  for  a  world-wide  depres- 
sion. That  cause  can  only  be  found  in  general  over- 
accumulation.  When,  therefore,  I  claimed  over-accu- 
mulation as  the  sole  cause  of  commercial  crises  I  meant 
general,  not  national  crises.  The  latter  may  be  brought 
about  by  the  exportation  of  gold,  but  can  never  be  very 
severe  if  the  normal  ratio  of  capital  to  population  has  not 
been  too  much  disturbed. 

My  arguments,  if  valid,  surely  supply  the  only  satis- 
factory explanation  of  commercial  crises  ever  advanced ; 
and  that  they  do  so  is  certainly  an  important  verification 
of  the  deductions  made,  and  entitle  them  to  more  con- 
sideration than  similar  ideas  have  heretofore  received. 
There  has  been,  indeed,  much  excuse  for  the  neglect  and 
even  the  contempt  with  which  somewhat  similar  views 
have  been  regarded,  as  they  have  heretofore  been  pre- 
sented in  language,  apparently  at  least,  subversive  of 
6 


96  CAPITAL  AND  POPULATION". 

many  of  tlie  best-established  results  of  the  science.  I 
have  labored,  I  hope  not  without  success,  to  show  that 
they  are  really  in  accord  with  the  ideas  and  results  of 
the  best  thinkers,  and  that  these  themselves,  as  well  as 
their  less  able  opponents,  are  not  free  from  confusion 
in  their  use  of  terms,  and  that,  when  inaccuracies  of 
statement  and  definition  are  removed,  the  views  of 
those  on  both  sides  of  the  dispute  are  seen  to  coincide 
with  results,  as  we  shall  see  later  on,  in  the  practical  ap- 
plication of  the  science,  as  well  as  in  its  theories,  contem- 
plated by  neither. 


CHAPTEE  YI. 

CREDIT. 

Although  not  so  strictly  in  tlie  line  of  our  argument, 
some  criticisms  upon  Mill's  view  of  credit  will  be  advis- 
able, as  his  accuracy  of  statement  and  clearuess  of  percep- 
tion on  tbe  subject  have  been  somewhat  impaired  by  his 
ambiguous  conception  of  what  constitutes  the  loanable 
fund. 

In  Book  II,  chapter  xv,  section  4,  he  says : 

"There  is  scarcely  any  dealer  or  producer  on  a  considerable 
scale,  who  confines  his  business  to  what  can  be  carried  on  by  his 
own  funds.  When  trade  is  good,  he  not  only  uses  to  the  utmost  his 
own  capital,  but  employs  in  addition  much  of  the  credit  which  that 
capital  obtains  for  him.  "When,  either  from  over-supply  or  from 
some  slackening  in  the  demand  for  his  commodity,  he  finds  that  it 
sells  more  slowly  or  obtains  a  lower  price,  he  contracts  his  opera- 
tions, and  does  not  apply  to  bankers  or  other  money-dealers  for  a 
renewal  of  their  advances  to  the  same  extent  as  before.  A  business 
which  is  increasing  holds  out,  on  the  contrary,  a  prospect  of  profit- 
able employment  for  a  larger  amount  of  this  floating  capital  than 
previously,  and  those  engaged  in  it  become  applicants  to  the  money- 
dealers  for  larger  advances,  which,  from  their  improving  circum- 
stances, they  have  no  difficulty  in  obtaining.  A  different  distribu- 
tion of  floating  capital  between  two  employments  has  as  much  effect 
in  restoring  their  profits  to  an  equilibrium  as  if  the  owners  of  an 
equal  amount  of  capital  were  to  abandon  the  one  trade  and  carry 
their  capital  into  the  other.    This  easy,  and  as  it  were  spontaneous, 


98  CAPITAL  AND  POPULATIOK 

method  of  accommodating  production  to  demand  is  quite  sufficient 
to  correct  any  inequalities  arising  from  the  fluctuations  of  trade,  or 
other  causes  of  ordinary  occurrence." 

If  Mill  had  been  a  merchant,  lie  could  hardly  have 
failed  to  see  that  the  process  he  here  explains  is  not 
what  really  occurs. 

"When  goods  accumulate,  and  trade  becomes  poor,  the 
demand  for  loans  increases,  they  being  evidently  needed 
by  the  producer  to  enable  him  "to  carry"  his  goods ;  or, 
if  he  has  parted  with  them  to  a  speculator  or  jobber,  they 
will  need  loans  to  the  same  extent,  except  as  they  employ 
their  own  capital  for  the  purpose  ;  but  this  is  equivalent 
to  the  other,  as  thereby  the  same  amount  of  funds  is 
removed  from  the  loan  market.  The  number  of  discounts 
in  such  times  will  be  less,  because  that  depends  largely 
upon  the  activity  of  exchange,  which  is  then  much  re- 
duced ;  but  the  amount  on  loan,  or  withdrawn  from  the 
loan  market  to  carry  unsalable  goods,  will  be  larger  than 
ever,  and  will  be  greater  in  those  trades  in  which  the 
greatest  accumulations  have  taken  place  and  which  are 
consequently  the  dullest.  When,  on  the  contrary,  any 
particular  trade  is  brisk,  the  amount  that  will  be  loaned 
to  it,  for  the  purpose  of  carrying  its  dead  stock,  will  be 
small.  When,  however,  the  profits  of  any  trade  are  so 
large  as  to  lead  to  new  investments  of  fixed  capital  in  it, 
its  demand  for  loans  will  increase,  both  because  to  some 
extent  such  investments  will  be  made  from  •  borrowed 
funds,  and  because,  when  made  by  those  belonging  to 
the  owners,  they  remove  an  equivalent  amount  of  funds 
from  the  loan  market.  An  active  trade  demands  more 
active  stock  but  less  dead  stock  than  a  depressed  one,  and 
usually,  indeed,  we  may  say  always,  depends  less  for  its 
circulating  capital  upon  the  loan  market.     In  active  times, 


CREDIT.  99 

the  decrease  in  the  demand  for  loans  to  carry  dead  stock 
is  greater  than  the  increase  of  loans  to  be  employed  pro- 
ductively, and  any  increase  in  the  amount  on  loan  must 
be  attributed  to  the  demand  for  purposes  of  fixed  invest- 
ment ;  except,  indeed,  shortly  before  a  crisis  occurs,  when, 
the  amount  of  dead  stock  having  greatly  increased  and 
nearly  reached  its  limit,  large  loans  will  also  be  needed 
to  carry  it.  In  active  times,  therefore,  a  great  increase 
of  the  amount  on  loan  is  a  sign  that  accumulation  is 
rapidly  approaching  its  limit,  and  that  a  reaction  may 
soon  be  expected. 

In  Book  III,  chapter  xxiii,  section  3,  Mill  says : 

*'I  have,  thus  far,  considered  loans,  and  the  rate  of  interest,  as  a 
matter  which  concerns  capital  in  general,  in  direct  opposition  to  the 
popular  notion,  according  to  which  it  only  concerns  money.  In 
loans,  as  in  all  other  money  transactions,  I  have  regarded  the  money 
which  passes,  only  as  the  medium,  and  commodities  as  the  thing 
really  transferred — the  real  subject  of  the  transaction.  And  this  is, 
in  the  main,  correct ;  because  the  purpose  for  which,  in  the  ordinary 
course  of  affairs,  money  is  borrowed,  is  to  acquire  a  purchasing 
power  over  commodities.  In  an  industrious  and  commercial  coun- 
try, the  ulterior  intention  commonly  is,  to  employ  the  commodities 
as  capital ;  but  even  in  the  case  of  loans  for  unproductive  consump- 
tion, as  those  of  spendthrifts,  or  of  the  government,  the  amount 
borrowed  is  taken  from  a  previous  accumulation,  which  would  oth- 
erwise have  been  lent  to  carry  on  productive  industry;  it  is,  there- 
fore, so  much  subtracted  from  what  may  correctly  be  called  the 
amount  of  loanable  capital. 

"  There  is,  however,  a  not  unfrequent  case,  in  which  the  purpose 
of  the  borrower  is  different  from  what  I  have  here  supposed.  He 
may  borrow  money,  neither  to  employ  it  as  capital  nor  to  spend  it 
unproductively,  but  to  pay  a  previous  debt.  In  this  case,  what  he 
wants  is  not  purchasing  power,  but  legal  tender,  or  something 
which  a  creditor  will  accept  as  equivalent  to  it.  His  need  is  specific- 
ally for  money,  not  for  commodities  or  capital.  It  is  the  demand 
arising  from  this  cause  which  produces  almost  all  the  great  and 


100  CAPITAL  AND  POPULATIOK 

sudden  variations  of  the  rate  of  interest.  Such  a  demand  forms  one 
of  the  earliest  features  of  a  commercial  crisis.  At  such  a  period, 
many  persons  in  business,  who  have  contracted  engagements,  have 
been  prevented  by  a  change  of  circumstances  from  obtaining  in 
time  the  means  on  which  they  calculated  for  fulfilling  them.  These 
means  they  must  obtain  at  any  sacrifice,  or  submit  to  bankruptcy ; 
and  what  they  must  have  is  money.  Other  capital,  however  much 
of  it  they  may  possess,  can  not  answer  the  purpose  unless  money 
can  first  be  obtained  for  it;  while,  on  the  contrary,  without  any 
increase  of  the  capital  of  the  country,  a  mere  increase  of  circulating 
instruments  of  credit  (be  they  of  as  little  worth  for  any  other  pur- 
pose as  the  box  of  one-pound  notes  discovered  in  the  vaults  of  the 
Bank  of  England  during  the  panic  of  1825)  will  effectually  serve 
their  turn,  if  only  they  are  allowed  to  make  use  of  it.  An  increased 
issue  of  notes,  in  the  form  of  loans,  is  all  that  is  required  to  satisfy 
the  demand,  and  put  an  end  to  the  accompanying  panic.  But,  al- 
though in  this  case  it  is  not  capital  or  purchasing  power  that  the 
borrower  needs,  but  money  as  money,  it  is  not  only  money  that  is 
transferred  to  him.  The  money  carries  its  purchasing  power  with 
it  wherever  it  goes ;  and  money  thrown  into  the  loan  market  really 
does,  through  its  purchasing  power,  turn  over  an  increased  portion 
of  the  capital  of  the  country  into  the  direction  of  loans.  Though 
money  alone  was  wanted,  capital  passes ;  and  it  may  still  be  said 
with  truth  that  it  is  by  an  addition  to  loanable  capital  that  the  rise 
of  the  rate  of  interest  is  met  and  corrected. 

"  Independently  of  this,  however,  there  is  a  real  relation,  which 
it  is  indispensable  to  recognize,  between  loans  and  money.  Loan- 
able capital  is  all  of  it  in  the  form  of  money.  Capital  destined  di- 
rectly for  production  exists  in  many  forms ;  but  capital  must  always 
be  such  as  to  adjust  these  two  amounts  to  one  another.*    But  while 

*  I  do  not  include  in  the  general  loan-fund  of  the  country  the  capitals, 
large  as  they  sometimes  are,  which  are  habitually  employed  in  speculatively 
buying  and  selling  the  public  funds  and  other  securities.  •  It  is  true  that  all 
who  buy  securities  add,  for  the  time,  to  the  general  amount  of  money  on 
loan,  and  lower,  to  that  extent,  the  rate  of  interest.  But  as  the  persons  I 
speak  of  buy  only  to  sell  again  at  a  higher  price,  they  are  alternately  in  the 
position  of  lenders  and  borrowers  :  their  operations  raise  the  rate  of  inter- 
est at  one  time,  exactly  as  much  as  they  lower  it  at  another.  Like  all  per- 
sons who  buy  and  sell  on  speculation,  their  function  is  to  equalize,  not  to 


CREDIT.  101 

the  whole  of  this  mass  of  lent  capital  takes  effect  upon  the  perma- 
nent rate  of  interest,  the  fluctuations  depend  almost  entirely  upon 
the  portion  which  is  in  the  hands  of  bankers ;  for  it  is  that  portion 
almost  exclusively  which,  being  lent  for  short  times  only,  is  contin- 
ually in  the  market  seeking  an  investment.  The  capital  of  those 
who  live  on  the  interest  of  their  own  fortunes  has  generally  sought 
and  found  some  fixed  investment,  such  as  the  public  funds,  mort- 
gages, or  the  bonds  of  public  companies,  which  investment,  except 
under  peculiar  temptations  or  necessities,  is  not  changed. 

"  Fluctuations  in  the  rate  of  interest  arise  from  variations  either 
in  demand  for  loans  or  in  the  supply.  The  supply  is  liable  to  vari- 
ation, though  less  so  than  the  demand.  The  willingness  to  lend  is 
greater  than  usual  at  the  commencement  of  a  period  of  speculation, 
and  much  less  than  usual  during  the  revulsion  which  follows.  In 
speculative  times  money-lenders,  as  well  as  other  people,  are  in- 
clined to  extend  their  business  by  stretching  their  credit ;  they  lend 
more  than  usual  (just  as  other  classes  of  dealers  and  producers  em- 
ploy more  than  usual)  of  capital  which  does  not  belong  to  them. 
Accordingly,  these  are  the  times  when  the  rate  of  interest  is  low ; 
though  for  this,  too  (as  we  shall  hereafter  see),  there  are  other 
causes.  During  the  revulsion,  on  the-ciisntrapy^  interest  always  rises 
inordinately,  because,  while  there  i^  a  most  pressing  need  on  the 
part  of  many  persons  to  borrow,  thoi?e  is  a.  ^cin^r^h^isii^ds'nfTtion  to 
lend.  This  disinclination,  when  at  its  exti'eme  point,  is  called  a 
panic.  It  occurs  when  a  succession  of  unexpected  failures  has  cre- 
ated, in  the  mercantile,  and  sometimes  also  in  the  non-mercantile, 
public,  a  general  distrust  in  each  other's  solvency ;  disposing  every 
one  not  only  to  refuse  fresh  credit,  except  on  very  onerous  terms, 
but  to  call  in,  if  possible,  all  credit  which  he  has  already  given.  De- 
posits are  withdrawn  from  banks ;  notes  are  returned  on  the  issuers 
in  exchange  for  specie;  bankers  raise  their  rate  of  discount,  and 
withhold  their  customary  advances;  merchants  refuse  to  renew 
mercantile  bills.  At  such  times  the  most  calamitous  consequences 
were  formerly  experienced,  from  the  attempt  of  the  law  to  prevent 
more  than  a  certain  limited  rate  of  interest  from  being  given  or 

raise  or  lower  the  value  of  the  commodity.  When  they  speculate  prudent- 
ly, they  temper  the  fluctuations  of  price  ;  when  imprudently,  they  often  ag- 
gravate them. 


102  CAPITAL  AND  POPULATION. 

taken.  Persons  wlio  could  not  borrow  at  five  per  cent  had  to  pay, 
not  six  or  seven,  but  ten  or  fifteen  per  cent,  to  compensate  the  lender 
for  risking  the  penalties  of  the  law ;  or  had  to  sell  securities  or 
goods  for  ready  money  at  a  still  greater  sacrifice. 

"In  the  intervals  between  commercial  crises  there  is  usually  a 
tendency  in  the  rate  of  interest  to  a  progressive  decline,  from  the 
gradual  process  of  accumulation ;  which  process,  in  the  great  com- 
mercial countries,  is  sufficiently  rapid  to  account  for  the  almost  pe- 
riodical recurrence  of  these  fits  of  speculation ;  since,  when  a  few 
years  have  elapsed  without  a  crisis,  and  no  new  and  tempting  chan- 
nel for  investment  has  been  opened  in  the  mean  time,  there  is  always 
found  to  have  occurred  in  those  few  years  so  large  an  increase  of 
capital  seeking  investment  as  to  have  lowered  considerably  the  rate 
of  interest,  whether  indicated  by  the  prices  of  securities  or  by  the 
rate  of  discount  on  bills ;  and  this  diminution  of  interest  tempts  the 
possessor  to  incur  hazards  in  hopes  of  a  more  considerable  return.'" 

Mill  has,  apparentlj,  nowhere  attempted  to  ascertain 
what  portion  of  the  general  fund  constitutes  the  loanable 
fund,  but  seems  to  suppose  that  it  is  composed  of  a  part 
only  of  t}ie  general^  fimd'.  -,  It  is  evident  that  the  loanable 
fund  is  not  composed  of  money,  as  its  sum  is  many  times 
too  layg6,"l?llaii|gii''Mi{l  ^ems  tb  imply  it  by  the  assertion 
that  it  is  always  in  the  form  of  money ;  as  far,  indeed, 
as  money  is  concerned,  the  loanable  fund  of  a  community 
is  only  temporarily  diminished  by  a  loan  being  effected. 
Such  loan  is  very  soon  deposited  by  the  borrower,  and 
there  is  as  much  money  to  lend  as  before.  The  amount 
the  community  carry  in  their  pockets  and  the  amount  in 
transit  may,  indeed,  vary  somewhat,  but  such  variance  is 
trivial  in  amount,  though  not  in  its  effects.  What,  then, 
constitutes  the  loanable  fund?  It  is  evidently  the  dis- 
posable goods,  the  capital  stock  of  the  community ;  but 
what  constitutes  the  demand  for  loans  ?  It  is  as  evidently 
the  same  capital  stock  that  can  be  given  as  security.  Not 
that  all  goods  form  a  part  of  the  demand  and  of  the  sup- 


CREDIT.  103 

ply  of  loanable  funds,  but,  when  goods  form  no  part  of 
the  one  fund,  neither  do  they  of  the  other.  When  the 
owner  of  any  commodities  is  able  to  carry  them  without 
borrowing,  they  form  neither  a  part  of  such  demand  nor 
supply ;  it  is  only  when  he  effects  their  exchange,  or,  what 
is  equivalent  to  exchange,  raises  a  loan  upon  them  as  se- 
curity, that  the  loan  market  is  affected,  and  such  transac- 
action  affects  the  supply  and  demand  equally.  The  loan 
market,  then,  is  as  purely  a  case  of  reciprocal  demand  as 
the  general  market  for  commodities,  in  which,  as  Say  has 
shown,  demand  can  never  exceed  supply,  or  supply  de- 
mand. 

By  demand  for  loans  I,  of  course,  mean  an  efficient 
demand.  The  mere  desire  to  borrow  is  much  great- 
er than  the  desire  to  lend  without  adequate  security. 
From  personal  motives  money  is  sometimes  so  lent,  but, 
when  it  is,  the  desire  of  the  borrower  by  that  very  cir- 
cumstance has  become  an  efficient  demand.  What  is 
really  transferred  by  a  loan  is  not  money,  but  the  use 
of  capital — or,  rather,  the  use  of  material  wealth  in  the 
broadest  sense  of  the  term,  as  the  lender  may,  or  may  not, 
intend  to  employ  such  wealth  productively.  Now,  it  is 
evident  that  all  the  wealth  of  the  community  can  be 
loaned  if  its  owners  are  willing  to  loan  it,  and  others  are 
willing  to  borrow  it  of  them  ;  but  when  this  was  effected 
there  would  be  no  decrease  of  loanable  funds,  for  the 
original  borrowers  could  loan  it  all  over  again  to  others, 
if  so  disposed. 

If  by  loanable  is  meant,  not,  able  to  be  loaned,  but, 
what  will  be  loaned,  that  amount,  of  course,  will  be  gov- 
erned by  the  inducements  held  out  by  borrowers.  What 
those  inducements  must  be  will  depend  mainly  upon  the 
exchangeable  value  of  the  use  of  capital,  i.  e.,  upon  the 


104  CAPITAL  AND  POPULATION. 

rate  of  profit,  in  operations  similarly  situated  as  to  diffi- 
culty and  risk.  But  such  inducement,  to  be  an  effect- 
ual one,  will  not  have  to  be  at  all  enhanced  on  account 
of  any  increase  in  the  amount  of  loans  made,  except 
as  such  increase  enhances  the  risk  of  lending.  The 
amount  of  commodities  that  can  be  lent  is  exactly  the 
same,  after  they  are  loaned,  as  before.  "We  are  justi- 
fied in  considering  the  loan  of  money  as  a  purchase, 
and  its  repayment  as  a  repurchase,  of  the  commodities 
which  form  the  security,  and  interest  as  the  profit  that 
accrues  on  the  transaction,  and,  if  it  is  less  or  more 
than  other  profits,  it  will  only  be  because  it  entails  less 
or  more  of  risk,  trouble,  and  skill.  Independent  of 
these,  interest  will  follow  the  same  law  as  profits,  be- 
cause it  really  is  a  profit. 

But  there  is  one  radical  distinction  between  profits 
and  interest.  Profits  rise  when  prices  rise  or  when 
money-wages  fall,  and  fall  when  prices  fall  and  money- 
wages  rise.  But  a  fall  in  prices  is  the  same  as  a  rise  in 
the  value  of  money.  The  profit  of  owning  or  lending 
money,  therefore,  the  rate  of  interest  remaining  constant, 
rises  when  prices  are  declining,  and  falls  when  prices 
rise.  Interest  may  be  very  low  and  the  gross  profit  of 
owning  obligations  due  in  money  may  be  very  great.  On 
the  other  hand,  when  prices  are  advancing,  the  gross 
profit  is  less  than  the  interest,  because  the  value  of  the 
principal,  when  it  is  returned,  will  be  less.  Interest  is 
only  equivalent  to  profit  in  cases  where  prices  remain 
uniform  during  the  life  of  the  loan.  When  prices  are 
declining,  therefore,  the  borrowing  producer  will  be  will- 
ing to  pay  a  very  small  interest,  because  he  expects  to  be 
obliged  to  repay  to  the  lender  a  greater  value  than  he  re- 
ceived from  him,  and  the  lender  will  be  willing  to  receive 


CREDIT.  105 

a  very  small  rate,  as  he  expects  to  receive  in  repayment 
a  greater  value  than  he  parted  with.  But,  if  he  expects 
prices  to  decline,  a  mere  speculator  will  not  pay  even  a 
small  rate  of  interest,  because  in  such  case,  as  he  is  not 
a  producer,  there  will  be  no  profit  at  all  for  it  to  be  sub- 
tracted from,  but  a  loss  to  be  added  to  the  interest  he 
pays.  We  see,  therefore,  that  it  is  utterly  impossible  for 
a  large  accumulation  of  wealth  of  itself  to  lead  to  any 
speculation.  If  prices  have,  indeed,  declined  too  far, 
some  advance  in  them  may  be  looked  for,  but,  as  long 
as  stocks  continue  large,  every  one  knows  that  it  can  be 
but  a  moderate  one,  and  no  great  speculation  can  ensue. 
That  is  a  luxury  that  the  community  only  indulges  in 
when  there  is  apprehension  of  a  scarcity.  Mill's  explana- 
tion of  panics,  as  due  to  the  speculation  engendered  by  a 
low  rate  of  profit  and  the  accumulation  of  capital  for 
which  no  legitimate  avenues  of  investment  are  open,  is 
not  only  inadequate,  but  diametrically  opposed  to  what 
really  occurs.  When  commodities  are  scarce,  speculation 
really  sets  in.  There  are  always  in  the  community 
shrewd  individuals  who  perceive  that  a  scarcity  is  immi- 
nent, and  buy  for  a  rise  before  prices  are  affected,  or  fully 
affected,  and  they  are  the  better  enabled  to  do  this  be- 
cause, their  speculations  being  more  or  less  closely  con- 
fined to  the  commodities  in  which  they  are  accustomed 
to  deal,  they  have  better  means  of  information  than  others 
as  to  the  quantity  of  them  in  existence.  It  will  soon  be 
found,  however,  after  a  period  of  low  profits  and  prices, 
that  other  articles  are  also  scarce,  and  speculation  will  be- 
come more  and  more  general,  and  prices  will  advance  all 
along  the  line. 

But  such  speculative  purchases  will  not  at  all  affect 
the  propoisfcional  amount  of  loanable  funds  to  the  demand 


106  CAPITAL  AND  POPULATIOK 

for  them,  though  they  will  very  much  increase  the  num- 
ber of  exchanges  of  property  and  the  number  of  discounts 
that  will  be  called  for.  They  have  a  powerful  effect  in 
increasing  the  amount  of  productive  consumption,  as  they 
relieve  the  producing  classes  of  the  dead  stock  they  w^ere 
carrying,  and  supply  them  with  money  or  the  right  to 
demand  money,  from  which  alone  the  wages-fund  can  be 
supplied.  Before  they  were  so  relieved,  the  producers 
were  forced  into  the  loan  market,  pledging  their  goods  to 
avoid  the  necessity  of  overpressing  the  sales  of  their 
dead  stock.  The  speculators  merely  take  their  place  as 
borrowers,  and  do  not  even  increase  the  activity  of  the 
loan  market,  except  as  they  purchase  and  repurchase  of 
each  other. 

When  the  crisis  has  come  and  prices  begin  to  tumble, 
the  high  rate  of  interest  likewise  is  no  proof  of  the  scar- 
city of  loanable  funds  in  proportion  to  the  demand.  It 
is  caused  by  the  greater  supposed  risk  then  incurred  in 
lending,  and  the  anxiety  of  bankers  to  retain  more  than 
their  proportion  of  the  reserve,  and  is  really  somewhat 
mitigated  by  the  expectation  of  a  decline  in  general 
prices. 

What,  then,  does  determine  the  average  rate  of  inter- 
est ?  We  may  answer  that  it  will  be  such  percentage  of 
the  principal  as,  together  with  an  addition  for  any  ex- 
pected fall,  or  with  a  subtraction  for  any  expected  rise  in 
general  prices,  will  equal  the  average  rate  of  profit  of 
other  capital  similarly  circumstanced  as  to  risk,  trouble, 
and  skill.  While  the  average  rates  of  interest  and  profit 
bear  a  constant  ratio  to  each  other,  the  rates  that  prevail 
at  any  particular  time  do  not  do  so,  but  may  vary  almost 
indefinitely,  and  the  one  affords  but  a  slight  indication  of 
what  the  other  is.     The  only  law  that  we  can.  affirm  is, 


CREDIT.  107 

that  during  dull  times  the  rate  of  interest  tends  to  be 
lower  than  the  rate  of  profit,  and  during  good  times, 
when  prices  are  advancing,  higher,  except  as  affected  by 
the  risk  involved. 

To  illustrate  our  meaning,  wdiich  is,  perhaps,  as  yet 
obscure  to  the  reader,  let  us  suppose  five  capitalists — M, 
B,  W,  R,  and  F — whom  we  will  consider  to  represent 
five  separate  classes,  and  to  constitute,  with  the  laborers, 
a  community  by  themselves.  Let  M  be  a  manufacturer  ; 
B,  a  banker ;  W,  a  wholesaler  or  jobber ;  R,  a  retailer ; 
and  F,  a  farmer.  Let  us  further  suppose  them  all  to  be 
possessed  of  an  equal  amount  of  circulating  capital :  M's 
will  consist  of  manufactured  foods  and  F's  of  raw  prod- 
ucts and  food,  while  Ws  and  R's  will  be  composed  partly 
of  goods  and  partly  of  food  and  raw  products,  and  B's 
will  be  money. 

Now,  in  a  state  of  barter,  M  and  F  would  exchange 
with  each  other  directly,  or  indirectly  through  "W"  and  R, 
and  B's  capital  would  lie  idle.  Under  a  cash  system,  B's 
capital  would  come  into  play.  He  would,  at  first,  be  the 
only  purchaser,  and  would  buy,  as  the  humor  took  him, 
indifferently  from  the  other  four ;  but  he  could  only  pur- 
chase for  unproductive  consumption,  and  would  finally 
be  eliminated  from  the  problem.  Under  the  credit  sys- 
tem, he  would,  however,  be  able  to  obtain  a  profit  for  his 
capital.  M  and  F  are  both  desirous  of  disposing  of  their 
stock,  but  neither  wants  the  goods  of  the  other,  nor  those 
of  W  and  R.  What  they  do  want  is  money  with  which 
to  pay  wages  and  continue  their  productive  consumption. 
"W  and  R  desire  to  dispose  of  their  goods  and  buy  those 
of  M  and  F,  but  can  not  do  so  unless  they  can  get  the 
money.  W,  therefore,  goes  to  B,  and  pledges  his  capital 
for  money,  with  which  he  buys  M's  goods,  who  imme- 


108  CAPITAL  AND  POPULATION". 

diatelj  deposits  the  money  with  B,  or  W  gives  M  his 
note  for  his  goods,  which  B  discounts  for  M,  who  pays  it 
out  in  wages,  and  the  laborers  expend  the  same  sum  with 
E,  who  deposits  it  with  B ;  or  if  M's  goods  do  not  suit 
W,  or  if  M  prefers  to  hold  them,  M  goes  direct  to  B  and 
obtains  the  money  he  needs  for  wages  by  pledging  his 
goods  to  him,  and  this  money  soon  returns  to  B  through 
K  or  W  or  F.  N"ow  we  will  suppose  W  desirous  of  also 
buying  F's  goods.  He  can  do  as  he  did  with  M,  for  B 
has  the  whole  of  his  original  capital  to  lend  him,  and  he 
can  give  security  upon  the  goods  that  formerly  belonged 
to  M.  Now  we  will  suppose  a  second  M  and  a  second  F, 
with  like  capital  and  goods  to  the  first,  and  W  is  still  able 
to  buy  their  goods,  because  B  is  still  able  to  lend  him  the 
funds.  However  great  the  increase  of  M's  and  F's,  the 
original  Ws,  B's,  and  B's  could  take  care  of  their  trade, 
provided  no  change  in  prices  occurred,  and  the  money 
withdrawn  by  one  party  were  immediately  returned  to  B 
by  another ;  and,  if  we  suppose  B  to  possess  enough  more 
capital  than  the  others  to  provide  for  such  contingencies, 
the  last  condition  can  be  eliminated,  l^ow,  if  by  increase 
of  loanable  funds  Mill  means  an  increase  of  gold  or  other 
money,  he  is  undoubtedly  wrong  in  afiirming  that  the  rate 
of  interest  would  be  lowered.  B,  not  being  able  at  first 
to  loan  all  his  capital,  might  for  a  time  lower  his  profits 
to  induce  the  others  to  borrow  more,  but  very  shortly  the 
value  of  their  goods  would  rise,  and  B  could  then  employ 
both  his  new  and  his  old  money  at  the  previous  rate.  But 
if  Mill  means  the  general  increase  of  the  wealth  of  the 
community,  such  increase  does  not,  imder  the  conditions 
we  have  supposed,  at  all  affect  the  demand  and  supply  of 
loanable  funds.  If  we  suppose  them  doubled  all  round, 
or  some  of  them  doubled,  some  not,  the  ratio  would  be 


CEEDIT.  109 

the  same,  and,  if  the  rate  of  interest  truly  depended  upon 
such  ratio,  it  would  always  be  uniform. 

But,  although  the  demand  and  supply  of  loanable 
funds  can  not  vary  except  together,  the  activity  of  the 
money  market  may  vary,  just  as  the  activity  of  exchange 
may,  although  the  demand  and  supply  of  commodities 
are  equivalent  terms,  and  the  activity  of  the  one  as  of 
the  other  will  vary  from  the  same  cause,  viz.,  the  increase 
or  decrease  of  profits. 

In  our  illustration  we  have  supposed  prices  of  every- 
thing, labor  included,  to  remain  uniform.  Now,  let  us 
see  how  our  five  capitalists  would  act  when  prices  did 
vary.  If  all  prices,  including  the  price  of  labor,  varied 
together,  as  soon  as  exportation  or  importation  had  ad- 
justed the  amount  of  gold  thereto,  the  old  conditions 
would  be  restored  :  let  us  suppose  the  prices  of  com- 
modities fall,  and  the  price  of  labor  does  not  fall,  or, 
what  is  the  same  thing,  that  labor  rises  in  money  price, 
while  commodities  remain  stationary  or  fall.  It  is  evi- 
dent that  M  and  F  will  borrow  more  than  they  did  if 
they  go  on  producing ;  but  they  will  be  under  no  ne- 
cessity of  borrowing  of  B  at  all,  supposing  their  stock 
not  to  be  in  excess  of  their  capital  and  they  totally  cease 
producing.  Let  us  suppose  that  they  go  on  producing, 
but  only  to  half  the  former  extent ;  all  the  exchanges  we 
have  supposed  will  go  on  exactly  as  they  did  before,  but 
they  will  only  be  to  about  half  the  amount.  B's  capital, 
as  before,  would  remain  in  his  hands,  and  the  ratio  of 
deposits  to  discounts  would  remain  nearly  the  same  as  it 
previously  was,  and  they  alone  constitute  the  demand 
and  supply  of  the  loan  market.  B's  capital,  which,  by 
supposition,  consists  wholly  of  money,  if  the  system  of 
payment  is  entirely  by  checking,  will  never  be  out  of  his 


110  CAPITAL  AND  POPULATION. 

hands,  and  is  in  no  sense  an  addition  to  loanable  funds, 
but  purely  and  simply  an  instrument  of  exchange,  and 
could  be  entirely  dispensed  with  without  any  effect  upon 
the  loan  market,  if  it  were  not  needed  as  an  element  of 
confidence. 

The  cause  of  money  being  tight  or  plenty  is  that  our 
system  of  banking  is  not  ideally  perfect.  If  it  were  so, 
no  activity  in  the  loan  market  would  have  the  slightest 
effect  upon  bankers'  reserves ;  as  it  is,  more  is  required 
when  the  sum  total  of  discounts  is  large,  to  allow  for  the 
transfer  of  funds,  and  this  amount  comes,  of  course,  from 
the  reserve.  Now,  it  is  only  as  this  reserve  is  affected 
that  lenders  will  be  able  to  exact  more,  or  be  willing  to 
take  less,  than  such  rate  of  interest  as  will  yield  them  the 
average  rate  of  profit  at  the  time,  consideration  being,  of 
course,  given  to  risk,  trouble,  and  skill,  and  to  the  expec- 
tation of  a  rise  or  decline  in  the  exchange  value  of  money. 
Under  an  ideally  perfect  system  of  banking,  by  which  we 
mean  that  all  transfers  were  by  check  alone,  bankers 
would  be  wholly  unable  to  affect  the  total  reserve ;  and, 
as  it  is,  they  have  very  limited  power  of  doing  it.  But 
individual  bankers  can  decrease  or  increase  their  own 
reserve,  though  at  the  expense  of  the  reserves  of  others, 
and  the  disposition  during  dull  times  to  lend  a  portion  of 
it,  and  during  times  of  activity  when  the  reserve  dimin- 
ishes, or  of  panic  when  each  banker  desires  to  accumu- 
late in  his  vaults  all  he  can,  irrespective  of  any  profit  he 
may  thereby  fail  to  obtain,  the  eagerness  to  retain  the 
utmost  share  of  the  total  reserve,  enables  bankers  to  fix 
the  rate  of  interest  below  or  above  what  may  be  called 
the  normal  rate.  The  interest  of  money  is,  therefore, 
affected  by  the  activity  of  the  loan  market,  but  in  no 
sense  depends  upon  the  ratio  of  demand  and  supply  of 


CREDIT.  ni 

loanable  funds.  Anything  which  affects  the  proportion 
between  money  and  other  commodities  affects  likewise 
the  rate  of  interest,  but  only  until  prices  are  adjusted 
to  the  new  conditions.  Great  speculators  frequently 
avail  themselves  of  this,  and  temporarily  raise  the  rate 
of  interest  by  locking  up  large  amounts  of  money;  if, 
however,  they  should  permanently  abstract  such  funds 
from  the  circulation,  the  rate  of  interest,  other  things 
remaining  the  same,  would  be  the  same  as  before,  as 
soon  as  prices  had  sufficiently  fallen. 

Through  one  circumstance,  however,  the  increase  of 
loans  does  affect  the  rate  of  interest.  We  have  seen  that 
the  rate  is  raised  by  any  decrease  in  the  reserve  of  bank- 
ers. Such  reserve  is  needed  as  an  element  of  confidence 
and  to  allow  of  the  fluctuations  in  the  amount  of  the 
individual  reserves  of  professional  lenders.  We  have 
also  seen  that,  when  the  loan  market  is  active,  the  total 
reserve  will  be  decreased  on  account  of  the  greater 
amount  of  money  in  transit ;  but  in  addition  to  this  the 
proportion  between  the  reserve  and  the  amount  of  loans 
is  disturbed  by  an  increase  of  the  amount  on  loan.  This, 
so  far  as  it  occurs^  impairs  confidence  and  adds  somewhat 
to  the  risk  of  lending.  The  only  influence  which  causes 
the  rate  of  interest  to  differ  from  the  rate  of  profit  is  the 
expectation  that  prices  will  decline  or  rise  during  the  life 
of  the  loan,  as  the  difference  in  the  nominal  rates  caused 
by  want  of  confidence  is  at  bottom  caused  by  the  risk  or 
supposed  risk  involved,  and  this  is  always  considered  and 
defined  as  an  element  of  the  rate  of  profit  itself. 

Mill's  apprehension  of  the  phenomena  of  the  loan 
market  seems  to  me  to  be  open  to  the  same  objections, 
which  he  derives  from  Say,  and  opposes  to  the  idea  that 
the  supply  of  commodities  does  not  itself  constitute  the 


112  CAPITAL  AND  POPULATION. 

demand  for  commodities.  I  liave  here  criticised  his 
Yiews,  not  because  they  have  any  effect  upon  the  main 
theme  of  this  treatise — ^the  relation  of  capital  to  popula- 
tion— ^but  because  he  attempts  to  find  in  them  the  sole 
causes  of  commercial  crises  and  industrial  stagnation,  the 
comprehension  of  which  is  only  possible  when  such  rela- 
tions are  clearly  understood.  The  idea  that  the  rate  of 
interest  depends  upon  the  demand  and  supply  of  loanable 
funds  or  upon  the  amount  actually  on  loan  at  the  time,  is 
certainly  misleading;  that  rate  is  entirely  governed  by 
the  element  of  the  supposed  risk  involved,  and  the  ex- 
changeable value  of  the  use  of  capital  at  the  time ;  and  it 
is  only  as  influencing  these  tw^o  elements  that  the  activity 
or  amount  of  loans  has  any  effect. 


CHAPTEE  yil. 


WAGES     AND     PROFITS 


It  were  a  desideratum  in  economic  discussion  that  the 
word  "wages"  should  never  be  used  without  a  prefix. 
The  subjects,  in  discussing  which  the  term  comes  into 
play,  are  so  complicated  that  no  mind  is  able  to  carry  its 
connotations  without  occasionally  tripping,  when  the  un- 
qualified term  is  alike  used  for  its  three  very  distinct 
significations,  which  I  would  distinguish  as  jproportional, 
real,  and  money  wages. 

The  word  "  proportional "  is  my  own,  and  will  not  be 
met  with  elsewhere,  at  least  to  my  knowledge.  I  have 
so  far  used  it  without  explanation,  as  my  meaning  was 
sufficiently  distinct  for  the  previous  stages  of  the  argu- 
ment. Mill  and  Ricardo  express  the  idea  by  the  generic 
term  "  wages  "  alone,  and  especially  note  the  fact  in  each 
instance,  when  they  desire  to  distinguish  it  from  real  or 
money  wages.  I  can  not  but  think  that  this  has  led 
them  into  some  confusion,  and  prevented  them  from  per- 
ceiving several  of  the  implications  of  their  argument.  I 
must  confess  I  am  unable  in  places  to  understand  exactly 
what  they  mean  by  "  wages,"  and  to  such  extent,  that  I 
find  it  difficult  to  criticise  their  doctrines  before  defining 
what  I  understand  and  mean  to  express  by  the  three 
terms  "  proportional,  real,  and  money  wages." 


114  CAPITAL  AND  POPULATION. 

Proportional  wages,  then,  I  understand,  or,  rather  as 
the  term  is  mj  own,  I  define  to  be,  the  proportion  of  the 
product  received  as  wages  by  the  laborer  or  laborers  who 
produced  it,  after  a  deduction  from  such  product  is  made 
for  rent  and  for  the  profits  of  any  fixed  capital  employed. 
If  any  material  enter  into  the  product  not  produced  by 
the  laborers,  whose  proportional  wages  are  under  consid- 
eration, its  cost  and  the  profit  thereon  are  also  to  be  first 
deducted.  After  rent,  raw  produce,  and  the  use  of  fixed 
capital  are  paid  for,  the  proportion  in  which  what  re- 
mains is  divided  between  the  laborers  and  the  owners  of 
the  active  stock  determines  this  rate  of  wages  and  the 
rate  of  profit.  It  is  not,  as  might  at  first  be  supposed,  as 
owners  of  dead  stock  also  that  the  share  of  capitalists 
must  be  computed  ;  the  motive  of  their  engaging  in  pro- 
duction includes,  indeed,  the  profit  on  dead  as  well  as  on 
active  stock.  If  the  rate  of  profit  on  the  entire  capital 
expended  as  wages,  and  in  holding  their  goods  for  a 
market,  is  insufficient,  they  will  not  produce.  But  the 
profit  on  dead  stock  must  here  be  considered  as  equiva- 
lent to  a  profit  on  fixed  capital,  and  as  not  affecting  the 
computation  of  the  rate  of  proportional  wages.  To  illus- 
trate, we  will  suppose  two  capitalists,  one  of  whom  pro- 
duces wheat  and  the  other  wine,  and  that  the  wheat  can 
be  sold  within  the  year,  while  the  wine  can  not  find  a 
market  under  two  years.  It  is  clear  that  the  larger  profits 
of  the  wine-grower  should  not  be  considered  as  lowering 
the  proportional  wages  of  his  employes  or  the  rate  of 
profit  he  obtains.  During  the  last  year  it  is  kept,  the 
wine  may  be  fairly  considered,  for  the  purposes  of  this 
discussion,  as  fixed,  not  circulating  capital.  The  propor- 
tion of  the  product  which  goes  to  capital  varies,  of 
course,  according  to  the  amount  of  capital  employed,  as 


WAGES  AND  PROFITS.  115 

well  as  with  the  rate  of  profit  obtained.  "What  deter- 
mines the  rate  of  wages,  however,  is  not  the  amount,  but 
simply  the  rate  of  profit.  We  do  not  mean,  therefore,  by 
"  proportional "  that  the  proportion  is  between  the  wages- 
fund  and  the  gross  product.  Such  proportion  can  vary 
indefinitely  as  machinery  is  substituted  for  manual  exer- 
tion, or  as  the  normal  amount  of  dead  stock  is  increased 
without  disturbing  the  "cost  of  labor"  to  the  capitalist, 
or  the  reward  of  labor  to  his  employes.  But,  while  not 
affecting  the  computation  of  the  rate  of  proportional 
wages,  the  amount  of  profit  on  fixed  capital  and  dead  stock 
profoundly  affects  the  tendency  to  a  rise  or  fall  of  such 
wages  ?  Capitahsts  do  not  ordinarily  distinguish  in  their 
calculations  between  such  profits  and  those  they  receive 
on  their  expenditure  for  wages,  nor,  indeed,  need  they, 
as  they  never  vary  in  their  comparative  rate  to  any  ap- 
preciable amount.  If  the  general  rate  of  profit  is  low, 
proportional  wages  will  be  high,  with  a  tendency  to  de- 
crease ;  if  it  is  high,  such  wages  will  be  low,  with  a  ten- 
dency to  increase. 

The  amount  of  dead  stock  in  existence  does,  however 
— proportional  wages  remaining  the  same — considerably 
affect  real  wages,  when  such  dead  stock  is  partly  com- 
posed of  things  that  laborers  are  accustomed  to  consume. 
The  rate  of  profit  remaining  the  same,  the  larger  the 
amount  of  such  things  in  existence,  the  higher  will  be  the 
price  in  proportion  to  the  money-wages  that  the  laborer 
must  pay  for  them,  and  the  smaller  the  amount  of  such 
things  he  is  able  to  consume.  The  laborer's  interests  are, 
therefore,  subserved  by  any  policy  or  event  which  de- 
creases the  normal  amount  of  dead  stock,  at  least  so  far 
as  it  consists  of  articles  he  consumes. 

It  is  customary  for  economists  to  assert  indifferently 


116  CAPITAL  AND  POPULATION. 

tliat  the  rate  of  wages  depends  on  the  ratio  of  capital  to 
population,  and  on  the  demand  and  supply  of  labor. 
They  consider  the  two  to  be  equivalent  propositions.  If 
they  mean,  as  the  exigencies  of  their  argument  demand, 
proportional  wages,  they  are  right  as  to  the  former,  but 
wrong  as  to  the  latter  proposition,  and  the  two  proposi- 
tions are  the  opposite  of  equivalent.  When  the  ratio  of 
capital  to  population  is  the  largest,  is  exactly  the  time 
when  the  demand  for  labor  is  the  least.  The  demand 
does  not  depend  upon  the  amount  of  commodities  physic- 
ally available  for  the  wages-fund,  but  upon  the  amount 
that  can  be  employed  with  a  profit  as  active  stock.  This 
amount,  we  have  seen,  varies  inversely  with  the  amount 
of  circulating  capital  in  gross,  and  we  have  the  apparent 
anornaly  that  the  exchangeable  value  of  labor,  unlike 
that  of  other  commodities,  is  highest  when  the  demand 
for  it  is  least,  the  supply  remaining,  by  supposition,  the 
same.  The  explanation  lies  in  the  fact,  that  such  a  state 
of  affairs  depresses  the  exchangeable  value  of  the  com- 
modities in  which  wages  are  really  paid,  more  than  it  de- 
presses the  exchangeable  value  of  labor,  and,  value  being 
a  relative  term,  the  value  of  labor  as  compared  with  such 
commodities  is  enhanced.  If  any  commodity  be  an  ex- 
ception to  the  increase  of  the  ratio  of  capital  to  popula- 
tion, the  exchangeable  value  of  both  labor  and  the  other 
commodities  (food,  clothing,  etc.),  in  which  labor  is  really 
paid,  will  fall  as  compared  with  it.  If  they  fall  equally 
and  the  commodity  be  gold,  the  money  rate  of  wages 
will  decline,  but  not  the  proportional  rate.  "When  any 
material  commodity  is  relatively  in  excess,  its  exchange- 
able value  is  lessened,  because  the  commodities  with 
which  it  exchanges  are  not  relatively  superabundant. 
But  when  the  supply  of  labor  exceeds  the  demand  it  does 


WAGES   AND  PROFITS.  117 

SO  only  because  the  supply  of  the  things  for  which  it  is 
exchangeable  are  in  excess  to  a  greater  degree.  Its  ex- 
changeable value,  therefore,  can  not  be  decreased,  but 
must  be  enhanced  by  any  decrease  in  the  demand  for  la- 
bor coincident  with  and  caused  by  an  increase  in  the 
ratio  of  capital  to  population. 

The  rate  of  wages  does  not  depend  upon  the  demand 
for  labor,  but  the  demand  depends  upon  it.  The  ten- 
dency to  a  rise  or  fall  of  the  rate  does  indeed  depend 
upon  the  extent  of  the  demand,  but  such  influence  can. 
only  become  operative  when  the  demand  has  first  changed, 
by  its  effect  upon  production  and  accumulation,  the  ratio 
of  capital  to  population.  What  does  directly  depend 
upon  the  demand  for  labor  is  the  amount  of  employment, 
the  number  of  laborers  that  can  be  kept  at  work  ;  while 
the  rate  of  proportional  wages  depends  solely  on  the  ratio 
of  capital  to  population. 

The  efiiciency  of  labor  has  nothing  to  do  with  the 
rate  of  proportional  wages,  nor  has  the  margin  of  cultiva- 
tion. Proportional  wages  are  equal  whenever  the  rate 
of  profit  is  the  same,  whether  or  not  it  takes  in  one  place 
one  hundred  laborers  to  produce  the  same  amount  of  com- 
modities that  fifty  produce  elsewhere.  I^either  has  the 
price  of  labor  anything  to  do  with  the  rate.  A  rise  in 
real  or  money  wages  may  or  may  not  be  a  rise  in  propor- 
tional, but  a  rise  in  proportional,  or  in  money  wages,  other 
things  remaining  the  same,  necessarily  entails  a  fall  in  real 
wages,  as  we  shall  now  see  in  proceeding  to  a  considera- 
tion of  the  latter. 

The  rate  of  real  wages  can  be  ascertained  by  dividing 
the  amount  of  the  wages-fund  by  the  whole  number  of 
laborers,  not  by  the  number  only  of  those  employed. 
The  latter  division  would  ascertain  for  us  what  is  popu- 


118  CAPITAL  AND  POPULATION. 

larlj  called  the  "  going "  rate  of  wages,  and  that  name 
for  them  will  do  as  well  as  any  other,  as  what  such  rate 
is  does  not  much  affect  the  principles  or  deductions  of 
the  science.  In  defining  real  wages,  Mill  says,  in  Book 
II,  chapter  xxvi,  section  1 : 

"  What  is  here  meant,  however,  by  wages,  is  the  laborer's  real 
scale  of  comfort ;  the  quantity  he  obtains  of  the  things  which  nature 
or  habit  has  made  necessary  or  agreeable  to  him ;  wages,  in  the 
sense  in  which  they  are  of  importance  to  the  receiver." 

And  in  the  preceding  paragraph  he  affirms  that  such 

"  wages  depend  on  the  ratio  between  population  and  capital ;  and 
would  do  so  if  all  the  capital  in  the  world  were  the  property  of  one 
association,  or  if  the  capitalists  among  whom  it  is  shared  maintained 
each  an  establishment  for  the  production  of  every  article  consumed 
in  the  community,  exchange  of  commodities  having  no  existence. 
As  the  ratio  between  capital  and  population,  in  all  old  countries, 
depends  on  the  strength  of  the  checks  by  which  the  too  rapid  in- 
crease of  population  is  restrained,  it  may  be  said,  popularly  speak- 
ing, that  wages  depend  on  the  checks  to  population ;  that  when  the 
check  is  not  death,  by  starvation  or  disease,  wages  depend  on  the 
prudence  of  the  laboring  people;  and  that  w^ages  in  any  country 
are  habitually  at  the  lowest  rate  to  which  in  that  country  the 
laborer  will  suffer  them  to  be  depressed  rather  than  put  a  restraint 
upon  multiplication." 

This  definition  I  accept :  the  affirmation  I  have  re- 
peatedly shown  to  be  true  inversely,  and  in  a  sense  di- 
rectly the  reverse  of  Mill's. 

Other  things  being  equal,  the  rate  of  real  and  propor- 
tional wages  varies  inversely,  though  not  in  strict  propor- 
tion. A  rise  in  the  latter  always  entails  a  loss  of  employ- 
ment, which  usually  more  than  offsets  to  the  laborer  the 
benefit  of  the  rise :  a  rise  of  two  per  cent  would  proba- 
bly be  followed  by  a  decrease  of  ten  or  twenty  per  cent 


WAGES  AND  PEOFITS.  119 

in  the  number  of  laborers  employed.  (I  am  speaking 
now  of  tbe  temporary  rise  that  occurs  periodically  in  the 
fluctuations  of  trade,  and  not  of  the  decrease  in  what  may 
be  called  the  normal  rate  of  profit  that  proceeds  with  the 
growth  and  civilisation  of  a  country.  This  decline  of  the 
normal  rate  does  not  lead  to  any  cessation  of  industry. 
Capitalists,  being  as  well  satisfied  with  the  smaller  rate 
as  they  were  before  with  the  larger,  are  equally  willing 
to  employ  their  funds  productively.)  There  is  no  neces- 
sary ratio  between  the  rise  in  proportional  and  the  fall  in 
real  wages.  Such  rise  may  entail  a  slight  and  lasting  or 
a  severe  and  transient  cessation  of  employment,  which, 
when  it  occurs,  will  depend  upon  various  causes,  many  of 
which  may  be  accidental,  and  not  due  to  the  action  of 
economic  law ;  unless,  however,  the  economic  conditions 
are  disturbed  by  abnormal  causes,  such,  for  instance,  as 
the  occurrence  of  war,  the  detriment  to  the  laborer 
through  the  decrease  of  employment  must  be  many  times 
the  advantage  gained  by  the  rise  of  his  proportional 
wages.  It  must  be  so  by  about  the  amount  that  pro- 
ductive consumption  is  decreased  during  the  period  of 
lessened  production. 

Although,  in  his  main  argument.  Mill  constantly  af- 
firms that  "  wages  "  and  the  rate  of  profit  vary  inversely, 
he  qualifies  the  statement,  in  the  succeeding  quotation 
from  him,  by  substituting  the  term  "  cost  of  labor "  for 
"  wages  "  : 

"We  thus  arrive  at  the  conclusion  of  Ricardo  and  others,  that 
the  rate  of  profits  depends  on  wages;  rising  as  wages  fall,  and  fall- 
ing as  wages  rise.  In  adopting,  however,  this  doctrine,  I  must  in- 
sist upon  making  a  most  necessary  alteration  in  its  wording.  Instead 
of  saying  that  profits  depend  on  wages,  let  ns  say  (what  Ricardo 
really  meant)  that  they  depend  on  the  cost  of  labor. 
G 


120  CAPITAL  AND  POPULATION. 

""Wages  and  the  cost  of  labor  —  what  labor  brings  in  to  the 
laborer,  and  what  it  costs  to  the  capitalists — are  ideas  quite  distinct, 
and  which  it  is  of  the  utmost  importance  to  keep  so.  For  this  pur- 
pose it  is  essential  not  to  designate  them,  as  is  almost  always  done, 
by  the  same  name.  Wages  in  public  discussions,  both  oral  and 
printed,  being  looked  upon  from  the  point  of  view  of  the  payers, 
much  oftener  than  from  that  of  the  receivers,  nothing  is  more  com- 
mon than  to  say  that  wages  are  high  or  low,  meaning  only  that  the 
cost  of  labor  is  high  or  low.  The  reverse  of  this  would  be  oftener 
the  truth ;  the  cost  of  labor  is  frequently  at  its  highest  where  wages 
are  lowest.  This  may  arise  from  two  causes.  In  the  first  place, 
the  labor,  though  cheap,  may  be  inefl&cient.  In  no  European  coun- 
try are  wages  so  low  as  they  are  (or,  at  least,  were)  in  Ireland ;  the 
remuneration  of  an  agricultural  laborer  in  the  west  of  Ireland  not 
being  more  tlian  half  the  wages  of  even  the  lowest-paid  Englishman, 
the  Dorsetshire  laborer.  But  if,  from  inferior  skill  and  industry, 
two  days'  labor  of  an  Irishman  accomplished  no  more  work  than  an 
English  laborer  performed  in  one,  the  Irishman's  labor  cost  as  much 
as  the  Englishman's,  though  it  brought  in  so  much  less  to  himself. 
The  capitalist's  profit  is  determined  by  the  former  of  these  two 
things,  not  by  the  latter.  That  a  difference  to  this  extent  really 
existed  in  the  efficiency  of  the  labor,  is  proved  not  only  by  abundant 
testimony,  but  by  the  fact  that,  notwithstanding  the  lowness  of 
wages,  profits  of  capital  are  not  understood  to  have  been  higher  in 
Ireland  than  in  England. 

"  The  other  cause  which  renders  wages  and  the  cost  of  labor  no 
real  criteria  of  one  another  is  the  varying  costliness  of  the  articles 
which  the  laborer  consumes.  If  these  are  cheap,  wages,  in  the 
sense  which  is  of  importance  to  the  laborer,  may  be  high,  and  yet 
the  cost  of  labor  may  be  low ;  if  dear,  the  laborer  may  be  wretch- 
edly off,  though  his  labor  may  cost  much  to  the  capitalist.  This  last 
is  the  condition  of  a  country  overpeopled  in  relation  to  its  land  ;  in 
which,  food  being  dear,  the  poorness  of  the  laborer's  real  reward 
does  not  prevent  labor  from  costing  much  to  the  purchaser,  and  low 
wages  and  low  profits  coexist.  The  opposite  case  is  exemplified  in 
the  United  States  of  America.  The  laborer  there  enjoys  a  greater 
abundance  of  comforts  than  in  any  other  country  of  the  world,  ex- 
cept some  of  the  newest  colonies ;  but,  owing  to  the  cheap  price  at 
which  these  comforts  can  be  obtained  (combined  with  the  great 


WAGES  AND  PROFITS.  121 

efficiency  of  the  labor),  the  cost  of  labor  is,  at  least,  not  higher,  nor 
the  rate  of  profit  lower,  than  in  Europe. 

"  The  cost  of  labor,  then,  is,  in  the  language  of  mathematics,  a 
function  of  three  variables :  the  efficiency  of  labor ;  the  wages  of 
labor  (meaning  thereby  the  real  reward  of  the  laborer);  and  the 
greater  or  less  cost  at  which  the  articles  composing  that  real  reward 
can  be  produced  or  procured.  It  is  plain  that  the  cost  of  labor  to 
the  capitalist  must  be  influenced  by  each  of  these  three  circum- 
stances, and  by  no  others.  These,  therefore,  are  also  the  circum- 
stances which  determine  the  rate  of  profit ;  and  it  can  not  be  in  any 
way  affected,  except  through  one  or  the  other  of  them.  If  labor 
generally  became  more  efficient,  without  being  more  highly  reward- 
ed ;  if,  without  its  becoming  less  efficient,  its  remuneration  fell,  no 
increase  taking  place  in  the  cost  of  the  articles  composing  that  re- 
muneration ;  or,  if  those  articles  became  less  costly,  without  the  labor- 
er's obtaining  more  of  them — in  any  one  of  these  three  cases,  profits 
would  rise.  If,  on  the  contrary,  labor  became  less  efficient  (as  it 
might  do  from  diminished  bodily  vigor  in  the  people,  destruction  of 
fixed  capital,  or  deteriorated  education) ;  or,  if  the  laborer  obtained  a 
higher  remuneration,  without  any  increased  cheapness  in  the  things 
composing  it ;  or  if,  without  his  obtaining  more,  that  which  he  did 
obtain  became  more  costly — profits,  in  all  these  cases,  would  suf- 
fer a  diminution.  And  there  is  no  other  combination  of  circum- 
stances in  which  the  general  rate  of  profit  of  a  country,  in  all  em- 
ployments indifferently,  can  either  fall  or  rise." — (Mill,  Book  II, 
chapter  xv,  section  7.) 

The  proportion  between  real  and  proportional  wages, 
besides  the  effect  of  their  tendency  to  vary  inversely,  is 
also  affected  by  the  margin  of  cultivation ;  the  physical 
efficiency  of  the  laborers — their  education  or  mental  effi- 
ciency— any  social  custom,  or  other  cause,  which  prevents 
a  part  of  their  number  from  finding  employment,  and 
the  degree  of  skill  demanded  by  the  nature  of  the  na- 
tional industries. 

As,  in  the  quotation  above,  Mill  and  Ricardo  uniformly 
assume  that  real  and  proportional  wages  only  differ  from 


122  CAPITAL  AND  POPULATION. 

the  first  three  of  these  causes,  the  latter  two  they  seem 
to  have  overlooked,  while  thej  certainly,  hj  implication, 
deny  what  I  have  endeavored  to  establish  as  the  greatest 
difference  between  them — the  tendency  to  vary  inversely 
through  the  effect  upon  the  amount  of  employment  of  a 
rise  or  fall  of  the  rate  of  profit.  This  last  cause  of  differ- 
ence has  received  enough  of  our  attention,  and  nothing  in 
this  connection  calls  for  any  further  remarks  upon  the 
effect  of  the  margin  of  cultivation,  or  of  the  physical  or 
mental  efficiency  of  the  laborers,  except  to  notice  in 
passing,  that  the  margin  of  cultivation  is  by  far  the  most 
important  determinant  of  the  rate  of  real  wages;  the 
other  two  remaining  causes  are,  however,  of  great  mo- 
ment, especially  as  affecting  subjects  to  be  hereafter 
considered,  and  because  they  have  so  generally  been 
ignored. 

I  would  remark,  then,  that  anything  which  prevents 
those  debarred,  by  physical  or  mental  disability,  or  by  sex, 
from  seeking  or  finding  general  employment,  from  seek- 
ing or  finding  the  special  employment,  for  w^hich  they 
are  fitted,  lowers  the  rate  of  real  wages  as  compared  with 
proportional,  and  is  a  deduction  from  the  comforts  and 
subsistence  of  the  laboring  classes,  exactly  equal  to  what 
such  persons  would  earn  if  employed,  or  rather  to  what 
those  whose  places  they  took  would  earn  if  employed,  as 
they  would  necessarily  very  soon  be,  since  the  increase  in 
the  number  of  laborers,  involved  in  such  change  of  em- 
ployment, could  not  but  affect  favorably  the  rate  of  profit, 
and  correspondingly  enlarge  the  demand  for  labor.  But 
that  they  should  be  engaged  productively  is  likewise  to 
the  advantage  of  the  capitalist,  because  it  increases  the 
normal  ratio  which  capital  can  bear  to  population  without 
increasing  the  population  itself.     The  additional  produe- 


WAGES  AND  PROFITS.  123 

tion  that  wo  aid  then  take  place  would  allow  of  further 
accumulation  by  the  rich,  sufficient  to  employ  such  labor, 
without  lowering  the  rate  of  profit  at  all.  It  is  the  in- 
terest of  employer  and  employe  alike  that  all  their  fel- 
low-citizens should  be  engaged  productively.  We  suffer, 
perhaps,  from  no  greater  economic  evil  than  the  social 
custom  which  discourages  one  half  the  human  family — 
the  female  sex — from  engaging  in  productive  employ- 
ment, and  condemns  them  almost  entirely  to  unproduc- 
tive services,  or  an  idle  dependence  upon  producers,  as  a 
means  of  support.  Nature  has,  indeed,  apportioned  the 
household  duties  to  the  wives,  mothers,  and  daughters, 
and  these  duties  are  necessarily  of  the  nature  of  services, 
and  not  productive ;  but  the  demand  for  these  services 
does  not  happen  to  be  sufficient  to  employ  the  whole  or 
nearly  the  whole  sex,  and  the  labor  of  those  not  needed 
should  be  productively  engaged.  If  it  were,  it  is  not  too 
much  to  assert  that  the  annual  produce  of  the  country 
would  be  increased  at  least  ten  to  fifteen  per  cent,  and 
such  increase  would  be  a  pure  addition  to  net  as  well  as 
gross  income.  But  another  economic  effect  would  follow 
of  incalculable  importance  to  the  future  of  the  race.  The 
tendency  of  population  to  press  upon  the  food-supply 
would  certainly  be  lessened  and  probably  obliterated  by 
it.  The  great  addition  to  income  involved  would  not  only 
be  mainly  devoted  to  a  rise  in  the  standard  of  living, 
but  the  opportunity  of  self-support  would  remove  the 
necessity  of  matrimony  to  women  as  the  only  alternative 
by  which  they  can  hope  to  escape  starvation  or  depend- 
ence. Besides  which,  marriage  between  young  men  and 
women,  productively  employed,  would  involve  a  positive 
decrease  of  their  joint  income,  that  could  not  fail  of 
acting  as  a  preventive  to  unwise  unions.     Political  econ- 


124  CAPITAL  AND  POPULATION. 

omy  has  been  named  "  the  dismal  science,"  for  no  other 
reason  than  the  seeming  impossibility  of  applying  really 
efficient  preventive  checks  to  the  too  rapid  increase  of 
population,  that  are  not  also  subversive  of  the  best  social 
instincts  of  the  race.  But  here  is  a  check  probably  of 
itself  sufficient,  that  will  accord  with  and  not  antagonize 
personal  inclination. 

If,  then,  the  proper  aim  of  government  is  the  good  of 
the  whole,  women  have  a  right  to  claim,  while  debarred 
by  social  custom  from  other  employments,  the  exclusive 
appointment  to  every  office  the  duties  of  which  are  not 
inconsistent  with  their  physical  organization  or  moral  deli- 
cacy, even  in  cases  where  their  efficiency  is  so  inferior  to 
that  of  men  as  to  involve  a  considerable  additional  ex- 
pense to  the  government.  Such  a  national  policy,  once 
established,  would  also  encourage  the  employment  of 
female  labor  by  private  individuals,  with  the  effect  of 
considerably  increasing  the  national  prosperity. 

But  the  policy  of  government  providing  a  stimulus 
to  the  employment  of  female  labor  also  affects  the  ques- 
tion of  free  trade  and  protection.  Most  of  our  protected 
industries,  especially  the  manufacture  of  textile  fabrics, 
employ  large  numbers  of  women  and  girls,  who  would 
not  otherwise  be  productively  employed  at  all  in  the 
agricultural  or  household  pursuits  from  which  our  pro- 
tective policy  has  diverted  them.  The  value  of  this  labor 
— and  it  is  certainly  not  less  than  fifty  per  cent  of  that 
employed  in  our  cotton,  woolen,  and  silk  mills — is  to  be 
offset  against  any  loss  in  the  efficiency  of  our  labor  from 
what  it  would  have  been  under  free  trade,  before  any 
decrease  in  the  productive  capacity  of  the  nation  can  be 
attributed  to  protection. 

The  following  passage  from  Mill,  in  a  note  to  Book  I, 


WAGES  AND  PROFITS.  125 

chapter  v,  section  1,  fuUj  sustains  in  principle  the  posi- 
tion here  taken : 

"An  exception  must  be  admitted  when  the  industry  created  or 
upheld  by  the  restrictive  law  belongs  to  the  class  of  what  are  called 
domestic  manufactures.  These  being  carried  on  by  persons  already 
fed — by  laboring  families,  in  the  intervals  of  other  employment— 
no  transfer  of  capital  to  the  occupation  is  necessary  to  its  being  un- 
dertaken, beyond  the  value  of  the  materials  and  tools,  which  is 
often  inconsiderable.  If,  therefore,  a  protecting  duty  causes  this 
occupation  to  be  carried  on,  when  it  otherwise  would  not,  there  is 
in  this  case  a  real  increase  of  the  production  of  the  country." 

This  leads  us  to  make  the  same  remark  of  the  remain- 
ing cause  of  difference  between  real  and  proportional 
wages.  Any  increase  of  skill  required  of  the  laborer,  by 
a  change  in  the  nature  of  his  trade,  is  a  direct  benefit  to 
the  laboring  classes,  as  it  raises  some  of  their  number  to 
a  higher  social  status,  in  which  thej  are  able  to  raise  the 
average  rate  of  real,  without  any  increase  of  proportional, 
wages.  The  skill  required  of  artisans  and  the  rate  of 
real  wages  that  they  receive  are  on  the  average,  in  every 
land,  decidedly  greater  than  the  skill  demanded  of  and 
the  real  wages  accorded  to  agricultural  laborers.  What- 
ever this  addition  to  real  wages,  due  to  protection,  may 
be,  it  is  also  to  be  offset  against  any  losses  due  to  the 
same  cause.  The  gain  is  considerable,  but  not  equal  to 
that  of  the  employment  of  female  labor.  It  may,  per- 
haps, be  estimated  at  from  ten  to  fifteen  per  cent  of  the 
male  labor  diverted  from  agriculture  to  manufactures. 

It  is  important  to  notice  that  both  these  gains,  what- 
ever they  are,  accrue  mainly  to  the  benefit  of  labor,  and 
do  not  add  to  the  rate  of  profits,  or  to  its  gross  amount, 
except  as  they  allow  of  more  capital  being  accumulated 
and  profitably  employed,  and  that  they  find  no  expression 


126  CAPITAL  AND  POPULATION. 

in  the  prices  at  whicli  international  exchanges  take  place. 
If,  in  all  countries,  journeymen  watch-makers  earned  in  a 
day  five  times  as  much  as  common  laborers,  and  it  took 
ten  days'  labor  to  make  a  watch,  a  country,  in  which  the 
margin  of  cultivation  was  such  that  the  wages  of  common 
labor  was  one  dollar  per  day,  could  produce  a  watch  for 
fifty  dollars,  while  a  more  fertile  and  less  peopled  land, 
where  labor  was  worth  one  dollar  and  a  half  per  day, 
could  not  produce  the  watch  under  seventy-five  dollars. 
Under  free  trade,  the  latter  would  buy  watches  of  its  less 
fertile  and  overpeopled  neighbor,  and  would  apparently 
save  twenty-five  dollars  on  each  watch  by  so  doing; 
whereas  the  apparent  gain  of  its  neighbor  would  be  only 
^ve  dollars,  that  being  by  supposition  the  difference  be- 
tween the  productive  efiiciency  of  ten  days'  agricultural 
labor  in  the  respective  countries.  Supposing  the  efiiciency 
of  artisan  labor  to  be  the  same  in  each  country,  the  joint 
gain  of  the  interchange  would  only  be  that  resulting 
from  the  fertile  soil  of  the  one  being  cultivated  in  place 
of  the  more  sterile  soil  of  the  other.  This  gain  amounts 
to  ^ve  dollars,  and  is  the  identical  five  dollars  gained  by 
the  watch-making  nation  ;  whereas  the  twenty-five-dollar 
gain  to  the  agricultural  nation  is  only  apparent,  being 
under  protection  a  mere  transfer  from  the  consumer  to 
the  skilled  artisan. 

By  diverting  ten  days'  labor  from  agriculture  to  the 
better-paid  watch-making,  the  over-populated  country 
has  gained  a  value  of  forty  dollars.  By  a  like  diversion, 
which  could,  however,  only  take  place  under  protection, 
the  under-populated  country  would  increase  the  value  of 
its  products  to  the  extent  of  sixty  dollars  ;  twenty-five  of 
them,  however,  being  at  the  expense  of  its  own  consum- 
ers, its  net  gain  would  be  only  thirty-five.     In  such  case 


WAGES  AND  PROFITS.  127 

protection  would  result  in  a  loss  to  the  world  of  five  dol- 
lars, but  also  to  such  a  redistribution  of  wealth  as  would 
result  in  a  net  gain  to  the  protected  country  of  thirty-five 
dollars,  and  a  net  loss  to  its  manufacturing  neighbor  of 
forty.  In  my  illustration,  I  have  supposed  that  the  ratio 
of  skilled  to  common  wages  was  the  same  in  both  places. 
This,  however,  except  for  convenience  of  calculation, 
makes  no  difference,  as  long  as,  in  both  places,  there  is 
some  distinction  made  in  favor  of  skilled  labor.  The 
expense  of  educating  the  laborers  to  their  higher  condi- 
tion of  life  is  also,  of  course,  to  be  deducted  from  the 
net  gain  of  thirty-five  dollars.* 

*  "  Although,  however,  general  wages,  whether  high  or  low,  do  not  affect 
values,  yet  if  wages  are  higher  in  one  employment  than  another,  or  if  they 
rise  or  fall  permanently  in  one  employment  without  doing  so  in  others, 
these  inequalities  do  really  operate  upon  values.  The  causes  which  make 
wages  vary  from  one  employment  to  another  have  been  considered  in  a 
former  chapter.  When  the  wages  of  an  employment  permanently  exceed 
the  average  rate,  the  value  of  the  thing  produced  will,  in  the  same  degree, 
exceed  the  standard  determined  by  mere  quantity  of  labor.  Things,  for 
example,  which  arc  made  by  skilled  labor,  exchange  for  the  produce  of  a 
much  greater  quantity  of  unskilled  labor ;  for  no  reason  but  because  the 
labor  is  more  highly  paid.  If,  through  the  extension  of  education,  the  la- 
borers competent  to  skilled  employments  were  so  increased  in  number  as  to 
diminish  the  difference  between  their  wages  and  those  of  common  labor,  all 
things  produced  by  labor  of  the  superior  kind  would  fall  in  value,  compared 
with  things  produced  by  common  labor,  and  these  might  be  said,  therefore, 
to  rise  in  value.  We  have  before  remarked  that  the  difficulty  of  passing 
from  one  class  of  employments  to  a  class  greatly  superior  has  hitherto 
caused  the  wages  of  all  those  classes  of  laborers  who  are  separated  from 
one  another  by  any  very  marked  barrier  to  depend  more  than  might  be 
supposed  upon  the  increase  of  the  population  of  each  class,  considered  sep- 
arately ;  and  that  the  inequalities  in  the  remuneration  of  labor  are  much 
greater  than  could  exist  if  the  competition  of  the  laboring  people  generally 
could  be  brought  practically  to  bear  on  each  particular  employment. 

"  It  thus  appears  that  the  maxim  laid  down  by  some  of  the  best  polit- 
ical economists,  that  wages  do  not  enter  into  value,  is  expressed  with  greater 


128  CAPITAL  AND  POPULATION. 

The  consideration  of  money -wages  need  not  detain 
lis  long.  Their  rate  is  evidently  ascertained  by  dividing 
the  money  value  of  the  vrages-fund  by  the  number  of 
laborers  employed.  That  of  real  wages  is  determined  by 
the  ratio  of  the  utility  of  the  wages  -  fund  to  the  whole 
number  of  laborers,  while  the  rate  of  proportional  wages 
is,  strictly  speaking,  not  a  rate  of  wages  at  all,  but  is  the 
ratio  of  the  wages-fund  itself  to  the  gross  product  after 
rental  and  the  use  of  fixed  capital  are  paid  for.  The 
consideration  of  money-wages  is  chiefly  of  interest,  be- 
cause it  is  through  change  in  them  that  changes  in  the 
others  are  effected.  It  is  at  present  sufficient  for  my 
purpose  to  say  that  a  general  rise  in  money-wages,  other 
money  values  remaining  the  same,  or,  in  other  words,  a 

latitude  than  the  truth  warrants,  or  than  accords  with  their  own  meaning. 
Wages  do  enter  into  value.  The  relative  wages  of  the  labor  necessary  for 
producing  different  commodities  affect  their  value  Just  as  much  as  the  rela- 
tive quantities  of  labor.  It  is  true,  the  absolute  wages  paid  have  no  effect 
upon  values ;  but  neither  has  the  absolute  quantity  of  labor.  If  that  were 
to  vary  simultaneously  and  equally  in  all  commodities,  values  would  not  be 
affected.  If,  for  instance,  the  general  efficiency  of  all  labor  were  increased, 
80  that  all  things  without  exception  could  be  produced  in  the  same  quantity 
as  before  with  a  smaller  amount  of  labor,  no  trace  of  this  general  diminu- 
tion of  cost  of  production  would  show  itself  in  the  values  of  commodities. 
Any  change  which  might  take  place  in  them  would  only  represent  the  un- 
equal degrees  in  which  the  improvement  affected  different  things;  and 
would  consist  in  cheapening  those  in  which  the  saving  of  labor  had  been  the 
greatest,  while  those  in  which  there  had  been  some,  but  a  less  saving  of  labor, 
would  actually  rise  in  value.  In  strictness,  therefore,  wages  of  labor  have 
as  much  to  do  with  value  as  quantity  of  labor ;  and  neither  Ricardo  nor  any 
one  else  has  denied  the  fact.  In  considering,  however,  the  causes  of  varia- 
tion in  value,  quantity  of  labor  is  the  thing  of  chief  importance ;  for,  when 
that  varies,  it  is  generally  in  one  or  a  few  commodities  at  a  time,  but  the 
variations  of  wages  (except  passing  fluctuations)  are  usually  general,  and 
have  no  considerable  effect  on  value." — (Mill,  Book  III,  chapter  iv,  sec- 
tion 3.) 


WAGES  AND  PROFITS.  129 

relative  rise,  results  always  in  a  rise  of  proportional  and 
a  fall  in  real  wages,  through  cessation  of  employment. 

It  may  be  well,  in  closing  this  chapter,  to  remark  that 
the  result  of  the  discussion  as  to  whether  such  a  fund  as 
the  wages-fund  really  exists  will  not  affect  the  argument. 
All  that  is  implied  by  the  term,  as  I  have  used  it,  could 
have  been  as  well  expressed  by  the  term  "  gross  amount 
of  wages."  To  my  mind,  it  seems  evident  that  past  and 
present  social  and  economic  conditions  do  accurately  pre- 
determine the  amount  that  will  be  expended  in  wages,  to 
such  degree  that  the  amount  of  that  fund  may  be  strictly 
considered  as  set  apart ;  but,  if  by  predetermination  it  is 
meant  that  the  amount  of  the  wages-fund  is  predeter- 
mined by  the  intentions  of  capitalists,  I  do  not  view  it  as 
governed  by  such  intentions,  except  to  a  very  slight  and 
temporary  amount. 


CHAPTEK  yill. 


CAPITAL    AND    LABOE. 


The  consideration  that  we  have  just  given  to  wages 
will  enable  ns  to  appreciate  better  the  true  relations  of 
capital  and  labor. 

'  The  interest  of  the  laborer  lies  solely  in  the  rate  of 
his  real  wages,  and  any  change  in  proportional  or  in 
money  wages  is  a  matter  of  indifference  to  him,  except 
as  such  change  affects  the  rate  of  real.  The  sole  interest 
of  the  capitalist,  however,  is  that  the  rate  of  proportional 
wages  should  be  low,  and  he  has  no  economic  concern 
with  real  or  money  wages,  except  as  they  affect  propor- 
tional. 

It  has  been  commonly  assumed  that,  while  capitalists 
and  laborers  were  both  interested  that  the  gross  annual 
produce  should  be  as  large  as  possible,  their  interests 
were  antagonistic  when  it  came  to  a  division  of  the 
spoils,  and  that  any  increase  in  the  share  of  one  class 
could  only  be  at  the  expense  of  a  decrease,  not  only  of 
the  relative  but  of  the  absolute  share  of  the  other. 
Now,  this  is  true  as  far  as  individuals  actually  engaged 
in  production  divide  a  certain  fixed  product,  but  not  true 
of  the  absolute  share  of  either  class  as  a  whole,  because 
there  is  a  division  of  present  products  that  by  leading  to 
an  increase  of  future  products  increases  the  absolute  share 


CAPITAL  AND  LABOR.  131 

of  each  class,  though  not,  of  course,  the  relative  share  of 
one  or  the  other  of  them.  It  can  not,  indeed,  be  assert- 
ed that  the  points  at  which  the  absolute  share  of  each 
will  be  the  greatest  always  coincide  exactly,  but  the 
points  are  evidently  very  near  together — so  near,  that 
the  attainment  of  one  will  practically  be  the  attainment 
of  the  other  also. 

In  any  given  society,  it  is  the  interest  of  the  capital- 
ists that  capital  should  bear  such  a  ratio  to  population,  as 
that  the  sum  arrived  at  by  multiplying  the  gross  capital 
by  the  rate  of  profit,  which  normally  results  from  such 
ratio,  shall  be  the  greatest.  Any  increase  of  capital,  be- 
yond that  amount,  will  augment  the  gross  sum  on  which 
profit  is  attained,  but  lessen  the  rate — any  decrease  will 
augment  the  rate,  and  lessen  the  gross  sum ;  but  in  either 
event  the  gross  income  derived  from  profits  will  be  de- 
creased. The  interest  of  the  laborer  will  likewise  be 
subserved  when  capital  bears  such  a  ratio  to  population 
that  the  sum  arrived  at  by  multiplying  the  number  of 
laborers  employed  by  the  average  rate  of  their  propor- 
tional wages,  or,  in  other  words,  the  total  wages-fund, 
shall  be  the  greatest.  Any  increase  of  capital,  beyond 
that  amount,  wiU  augment  the  rate,  but  decrease  the 
number  employed;  and  any  decrease  will  augment  the 
number,  but  decrease  the  rate  ;  and  in  either  event  the 
gross  income  from  wages  will  be  lessened.  The  inter- 
ests of  both  classes  are  therefore  identical  in  the  increase 
of  the  gross  product,  and  very  nearly,  if  not  quite,  iden- 
tical in  its  division  also,  because  the  ratio  of  capital  to 
population  ultimately  depends  upon  such  division. 

But,  as  I  have  before  remarked,  the  interests  of  indi- 
yidaals  do  not  coincide  with  the  interests  of  the  classes 
to  which  they  belong.     Every  employer  will  grow  richer 


132  CAPITAL  AND  POPULATION. 

bj  paying  low  wages,  and  every  laborer  by  exacting  high 
ones,  at  least  as  compared  with  their  fellow  employers 
and  employes.  We  have  here  a  case  in  which  individ- 
ual are  opposed  to  social  interests.  The  antagonism  be- 
tween labor  and  capital  results  wholly  from  the  growth  of 
class  out  of  individual  animosities.  It  subserves  the  in- 
terest of  every  employer  that  other  capitalists  should  pay 
higher  wages  than  he  does,  and  the  interest  of  every  la- 
borer that  other  laborers  should  work  for  lower  wages 
than  his  own.  The  individual  interest  of  each  is  really 
coincident  with  that  of  the  class  to  which  he  does  not  be- 
long. When  this  is  recognized,  and  not  before,  may  we 
expect  the  two  classes  to  harmonize  in  their  feelings  and 
actions. 

While  the  ratio  of  capital  to  population  that  yields  the 
greatest  income  to  capital  may  not  always  be  identical 
with  that  which  yields  the  greatest  income  to  labor,  it  is 
evident  that  the  ratio  which  leads  to  the  greatest  annual 
production  subserves  best  the  interest  of  the  community, 
and  that  political  and  social  action  should,  as  far  as  pos- 
sible, be  directed  to  secure  such  ratio,  with  a  leaning,  per- 
haps, to  the  interests  of  labor  from  humane  but  not  from 
economic  motives. 

The  real  interest  of  the  laboring  classes  is  in  real 
wages,  and  this  interest  can  be  advanced :  First,  by  in- 
creasing their  own  efficiency  by  a  more  faithful  and  in- 
dustrious performance  of  their  duties.  As  they  receive 
much  the  greater  part  of  the  gross  produce,  they  them- 
selves suffer  the  greater  part  of  the  loss  resulting  from 
laziness  and  inefficiency.  The  immediate  loss,  indeed, 
falls  upon  their  employers,  but  they  distribute  this  among 
the  consumers  of  their  goods  by  enhancing  their  price, 
and  the  laborers  themselves  suffer  it  ultimately  as  such 


CAPITAL  AND  LABOR.  133 

consumers.  Secondly,  by  any  change  in  the  nature  of 
the  national  industries,  by  which  more  of  the  class  are 
raised  from  the  position  of  common  laborers  to  that  of 
skilled  artisans.  Thirdly,  by  increasing  the  proportion 
of  their  own  number  who  enter  the  labor  market  as  com- 
petitors for  employment.  I  refer  here  chiefly  to  the  em- 
ployment to  a  greater  extent  of  female  labor.  Fourthly 
and  lastly,  by  never  seeking  to  raise  their  proportional 
wages  to  a  point  that  will  allow  capital  such  scant  remu- 
neration as  will  lead  to  a  decline  of  production. 

Owing  to  the  conflict  between  individual  and  social 
or  class  interests,  to  which  I  have  abeady  adverted,  the 
class  action  of  laborers,  as  it  has  expressed  itself  in  trades- 
unions,  has  been  diametrically  opposed  to  their  true  in- 
terests as  here  ascertained.  First,  they  have  endeavored 
to  lessen  their  own  efl&ciency  in  production.  Secondly, 
their  action  has  tended  to  discourage  any  change  in  the 
nature  of  industry  in  the  direction  of  substituting  skilled 
for  common  labor,  because  it  is  in  skilled  industries  alone 
that  they  are  able  to  combine  effectually  enough  to  influ- 
ence at  all  the  rate  of  profit  and  the  expense  of  conduct- 
ing such  industries  ;  besides  which,  in  such  industries,  by 
enforcing  the  occasional  idleness  of  fixed  capital,  they 
augment  in  them  the  amount  of  capital  that  is  necessary, 
and  thus  lessen  not  only  the  absolute  but  the  relative 
share  of  the  produce  that  accrues  to  themselves.  Third- 
ly, they  have  failed  to  demand,  as  their  moral  and  polit- 
ical right,  the  greater  employment  of  female  and  prison 
labor ;  and,  fourthly,  they  have  persistently  endeavored 
to  raise  the  rate  of  proportional  wages  beyond  the  point 
that  allowed  of  such  a  rate  of  profit  as  was  consistent 
with  the  highest  rate  of  real  wages. 

Their  whole  action  has  been  directed,  not  only  toward 


134:  CAPITAL  AND  POPULATION. 

the  lessening  of  the  gross  sum,  of  which  they  obtain  a 
part,  but  to  the  reduction  against  themselves  of  the  ratio 
in  which  that  sum  is  divided  between  capital  and  labor. 
They  have  succeeded  in  reducing,  not  only  their  absolute 
but  in  some  degree  their  relative  share ;  for  this  mistaken 
action  they  can  not  be  blamed,  if  real  and  proportional 
wages  coincide  to  the  degree  taught  by  English  econo- 
mists, and  if  over-accumulation  is  really  not  antagonistic 
to  their  employment  in  production.  If  I  am  wrong,  their 
action  is,  in  the  main,  right,  and  little  improvement  in 
their  condition  can  be  hoped  for ;  but,  if  I  am  correct,  it 
lies  in  the  power  of  the  laboring  classes  to  nearly  or  quite 
double  their  real,  without  increasing  in  the  least  the  rate 
of  their  proportional  wages.  The  truer  perception  of  the 
real  relations  of  capital  and  labor,  acquired  by  the  recog- 
nition of  the  constant  tendency  of  capital  to  press  upon 
population,  affords  the  only  solution  of  the  labor  question, 
w^ith  its  resulting  problems  of  socialism  and  revolution. 
The  condition  of  our  laboring  classes  is  very  unsatisfac- 
tory, and  daily  becoming  more  so,  "  where  wealth  accu- 
mulates and  men  decay."  They  have  a  right  to  demand 
such  social  reorganization  as  shall  give  them  a  far  greater 
absolute,  though  not  relative,  share  of  the  earth's  prod- 
ucts than  they  now  receive ;  and  that  this  can,  in  a  meas- 
ure, be  done,  not  only  not  to  the  detriment,  but  to  the 
positive  advantage  of  capital,  I  have  certainly  made  evi- 
dent. 

I  must  confess  myself  somewhat  surprised  at  the  fol- 
lowing passage  from  Mill's  work.  Book  Y,  chapter  x,  sec- 
tion 5 : 

"  If  it  were  possible  for  the  working  classes,  by  combining 
among  themselves,  to  raise  or  keep  up  the  general  rate  of  wages,  it 
need  hardly  be  said  that  this  would  be  a  thing  not  to  be  punished,  but 


CAPITAL  AND  LABOE.  135 

to  be  welcomed  and  rejoiced  at.  Unfortunately,  the  effect  is  quite 
beyond  attainment  by  such  means.  The  multitudes  who  compose 
the  working  class  are  too  numerous  and  too  widely  scattered  to  com- 
bine at  all,  much  more  to  combine  effectually.  If  they  could  do  so, 
they  might  doubtless  succeed  in  diminishing  the  hours  of  labor,  and 
obtaining  the  same  wages  for  less  work.  But  if  they  aim  at  obtain- 
ing actually  higher  wages  than  the  rate  fixed  by  demand  and  supply — 
the  rate  which  distributes  the  whole  circulating  capital  of  the  coun- 
try among  the  entire  working  population — this  could  only  be  accom- 
plished by  keeping  a  part  of  their  number  permanently  out  of  em- 
ployment. As  support  from  public  charity  would  of  course  be 
refused  to  those  who  could  get  work  and  would  not  accept  it,  they 
would  be  thrown  for  support  upon  the  trades-union  of  which  they 
were  members;  and  the  work-people,  collectively,  would  be  no 
better  off  than  before,  having  to  support  the  same  numbers  out  of 
tlie  same  aggregate  wages.  In  this  way,  however,  the  class  would 
have  its  attention  forcibly  drawn  to  the  effect  of  a  superfluity  of 
numbers,  and  to  the  necessity,  if  they  would  have  high  wages,  of 
proportioning  the  supply  of  labor  to  the  demand."  , 

No  passage  more  fertile  than  tliis  in  economic  errors 
was  ever  penned,  and  an  analysis  of  it  will  therefore 
serve  admirably  to  exemplify  the  difference  between 
Mill's  views  and  my  own. 

If,  by  combining,  he  means  to  assert  that  the  laborers 
might  be  able  to  retain  the  same  rate  of  proportional 
wages  while  shortening  the  hours  of  labor,  I  reply  that, 
while  this  is  technically  true,  it  is  not  true  in  the  sense 
that  Mill  intends.  Even  if  the  proportion  between  the 
number  of  laborers  employed  and  the  amount  of  the  wages- 
fund  might  be  maintained,  the  employment  of  a  relatively 
larger  active  fixed  capital  wonld  be  necessary — the  same 
amount  of  buildings,  tools,  and  machinery  being  required 
for  short  as  for  long  hours ;  but  such  proportion  would 
not  be  maintained,  on  account  of  the  fall  in  profits. 
Labor,  therefore,  would  receive  a  relatively  smaller  share 


136  CAPITAL  AND  POPULATION. 

of  a  relatively  smaller  produce,  unless,  indeed,  more  work 
was  accomplished  in  the  short  than  in  the  long  hours. 
Such  a  combination,  if  successful,  could  not  fail  to  greatly 
depress  the  rate  of  real  wages  as  compared  with  propor- 
tional, and  is  reprehensible  in  its  effects  upon  both  labor 
and  capital,  and  especially  so  in  its  effect  upon  the  labor- 
ers themselves,  though  it  is  not  a  proper  subject  for  legis- 
lative repression.  Mill  here  affirms  by  implication  that 
real  and  proportional  wages  are  not  differently  affected  by 
the  efficiency  of  labor,  although  he  has  elsewhere  pointed 
out  that  they  are.  Assuming  also,  contrary  to  his  own 
definition  of  circulating  capital,  that  it  is  all  at  once  dis- 
tributed among  laborers,  he  seems  to  suppose  that  the 
amount  so  distributed  will  depend,  not  upon  the  sup- 
posed value  of  what  will  be  produced,  but  upon  the 
amount  of  past  accumulation. 

He  then  goes  on  to  say,  "  But  if  they  aimed  at  ob- 
taining actually  higher  wages  than  the  rate  fixed  by  de- 
mand and  supply — the  rate  which  distributes  the  whole  cir- 
culating capital  of  the  country  among  the  entire  working 
population — this  could  only  be  accomplished  by  keeping 
a  part  of  their  number  out  of  employment."  But  there 
is  no  rate  at  all  determined  by  "  the  whole  circulating 
capital "  as  one  of  its  factors.  And  there  is,  further,  no 
rate,  either  of  proportional,  real,  or  money  wages  depend- 
ent directly  upon  the  demand  for  labor,  because  the  cause 
of  any  change  in  demand  for  labor  is  itself  a  corre- 
sponding change  in  the  ratio  of  the  demand  and  supply  of 
the  commodities  for  which  labor  is  exchanged.  Curtail- 
ment in  the  amount  of  employment  does,  indeed,  follow 
any  rise  of  proportional  wages,  but  it  is  not  on  account  of 
the  insufficiency  of  circulating  capital,  physically  available 
for  wages,  but  because  such  rise  can  only  be  at  the  ex- 


CAPITAL  AND  LABOR.  137 

pense  of  profits,  the  hope  of  which  is  the  sole  induce- 
ment to  employ  labor. 

There  is,  however,  one  trivial  exception  to  the  re- 
marks I  have  made,  which  it  will  be  well  to  note,  al- 
though neither  theoretically  nor  practically  of  much  im- 
portance. 

In  Book  Y,  chapter  x,  section  5,  of  Mill's  work,  I  find 
the  passage : 

"  Combinations  to  keep  up  wages  are  sometimes  successful,  in 
trades  where  the  work-people  are  few  in  number,  and  collected  in 
a  small  number  of  local  centers.  It  is  questionable  if  combinations 
ever  had  the  smallest  effect  on  the  permanent  remuneration  of 
spinners  or  weavers;  but  the  journeymen  type-founders,  by  a  close 
combination,  are  able,  it  is  said,  to  keep  up  a  rate  of  wages  much 
beyond  that  which  is  usual  in  employments  of  equal  hardness  and 
skill ;  and  even  the  tailors,  a  much  more  numerous  class,  are  under- 
stood to  have  had,  to  some  extent,  a  similar  success.  A  rise  of 
wages,  thus  confined  to  particular  employments,  is  not  (like  a  rise 
of  general  wages)  defrayed  from  profits,  but  raises  the  value  and 
price  of  the  particular  article,  and  falls  on  the  consumer." 

It  is  evident  that  when,  in  any  particular  trade,  the 
rate  of  money- wages  is  raised  by  trades-unions,  there  is  no 
rise  of  proportional  wages ;  for  the  price  of  the  commodi- 
ty produced  will  soon,  if  not  immediately,  also  rise  enough 
to  cover  the  increase  in  the  cost  of  production ;  but  there 
will  result  a  rise  of  real  wages  to  the  laborers  engaged  in 
the  supposed  trade,  which  will  be  gained  by  them  at  the 
expense  of  the  consumers  of  the  article  produced.  In  so 
far  as  such  article  is  consumed  by  the  poor,  there  is  no 
rise  in  the  average  real  wages  of  the  class ;  but,  in  so  far 
as  it  is  consumed  by  the  rich,  there  is  such  a  rise,  and  at 
the  expense,  not  of  profits,  but  of  the  rich  consumer. 
But  whether  this  apparent  rise  will  result  in  a  real  gain 
to  the  laboring  class  wiU  depend  entirely  on  the  effect  of 


138  CAPITAL  AND  POPULATION. 

the  increased  cost  of  sucLl  luxury  upon  accumulations.  If 
the  same  money  value  is  consumed  as  before,  as  it  then 
takes  fewer  laborers  to  produce  such  value,  some  will  be 
thrown  out  of  employment,  and  the  gross  sum  distributed 
as  wages  will  be  unaffected.  If  less  is  consumed  and  ac- 
cumulations are  thereby  increased,  there  will  be  an  abso- 
lute loss  to  the  wages-fund  ;  but,  if  unproductive  consump- 
tion turns  out  to  be  increased,  the  laborer  will  gain  a  per- 
manent advance  in  his  real  wages.  To  some  small  extent 
the  latter  is  the  ordinary  result,  and  trades-unions  have 
probably  secured  to  labor  some  small  addition  to  real 
wages  in  this  manner ;  but  the  advantage  gained,  or  that 
can  be  gained,  is  insignificant,  and  of  very  doubtful  mo- 
rality, consisting  as  it  does  in  forcing  one  class  to  pay 
more  than  another  for  the  same  commodity — labor. 


CHAPTER  IX. 


CO-OPEEATION. 


Co-operation  is  undoubtedly  the  only  final  solution 
of  the  labor  question.  Although,  as  I  have  shown,  both 
capital  and  labor  are  equally  benefited  by  such  division 
of  the  total  produce  as  results  in  such  total  being  the 
largest,  and  that  either  class  loses  and  does  not  gain  by 
securing  for  itself  any  larger  proportion,  the  actions  of 
the  individuals  composing  each  class  will  not,  naturally, 
conduce  to  such  fair  and  desirable  division.  The  conflict 
between  individual  and  social  interest  can  only  cease 
when  each  individual  receives  profits  as  well  as  wages. 
We  are  not  here  concerned  with  the  moral  and  industrial 
effects  that  may  be  expected  to  flow  from  co-operation, 
further  than  to  observe  that  its  adoption  must  materially 
increase  the  efiiciency  of  labor,  but  that  such  benefit  can 
not  be  looked  for  except  as  the  intelligence  and  morality 
of  the  laboring  classes  are  further  evolved.  It  belongs  to 
our  subject  to  consider  what  effect  its  adoption  will  have 
upon  the  ratio  of  capital  to  population.  It  is  evident 
that,  when  wages  and  profits  go  wholly  to  the  same  indi- 
viduals, a  general  rise  in  proportional  wages  and  corre- 
sponding decrease  in  profits  will  not,  as  now,  at  all  dis- 
courage production.  A  general  glut  of  material  things 
will  then  be  impossible,  because  labor  will  have  ceased  to 


140  CAPITAL  AND  POPULATION. 

be  a  commodity.  Gaining  in  wages  what  lie  loses  in 
profits,  the  inducement  to  the  producer  to  go  on  with 
productive  consumption  will  be  the  same.  This  removes 
the  present  economic  check  to  over-accumulation.  In  a 
co-operative  society  excessive  accumulations  will  be  no 
less  useless  than  they  are  in  ours,  but  they  will  not  be  so 
hurtful,  because  they  will  not  lead  to  any  cessation  of 
industry.  "When  they  occur,  they  will  entail  a  loss  of  con- 
sumption alone,  and  may  properly  be  considered  as  con- 
sumed unproductively,  without  affording  any  enjoyment 
or  satisfaction;  and  the  loss  would  be  similar  to  that 
caused  by  fire  or  shipwreck.  In  such  state  of  society  ac- 
cumulation would  probably  proceed  almost,  if  not  quite, 
to  the  annihilation  of  profits,  but  would  not  go  beyond, 
as  it  is  not  in  human  nature  to  knowingly  suffer  a  greater 
present  deprivation  for  a  smaller  future  satisfaction. 

The  determination  of  labor  and  capital  to  individual 
trades  may  then,  as  now,  be  excessive  or  deficient,  with 
the  result  of  a  fall  or  rise  of  real  wages  and  profits  to  the 
producers  in  them  and  to  the  corresponding  benefit  or 
loss  of  consumers — ^the  producers  in  other  trades.  But 
this  will  lead  only  to  a  change  and  not  to  a  cessation  of 
employment. 

At  present,  accumulations  not  only  come  almost  ex- 
clusively from  profits,  but  come  in  a  disproportional  de- 
gree from  large  profits.  As  a  rule,  the  larger  an  individ- 
ual's income,  the  larger  the  proportion  of  it,  both  relatively 
and  absolutely,  that  is  saved.  The  inequality  of  individual 
fortunes  has  a  powerful  effect  in  intensifying  the  effect- 
iveness of  the  desire  to  accumulate.  Under  the  present 
social  state,  the  wage-receiving  class  are  practically  de- 
barred from  accumulating  at  all  when  the  accumulations 
of  the  rich  are  excessive ;  the  little  they  lay  aside  when 


CO-OPERATION.  141 

the  wages-fund  is  large  is  pretty  certain  to  be  unprodiic- 
tivelj  consumed  when  the  wages-fund  is  small,  and,  as 
we  have  seen,  periods  when  it  is  small  are  the  certain 
effect  of  over-accumulation  by  others.  The  effort  by  the 
rich  to  be  richer  than  economic  law  allows,  in  great  meas- 
ure prevents  the  poor  from  ever  becoming  possessors  of 
capital  at  all,  and  is  the  chief  reason  why  the  benefits  of 
our  progress  in  civilization  accrue  almost  wholly  to  the 
fortunate  few. 

Under  co-operation,  the  inequality  of  individual  fort- 
unes will  be  greatly  lessened,  and  consequently  the  gross 
sum  that  can  be  spared  and  saved  from  incomes  can  not 
well  be  so  great  as  at  present,  and  the  tendency  of  capital  to 
press  upon  population  will  be  correspondingly  decreased. 
If  the  credit  system  remains  after  the  adoption  of  co-op- 
eration (and  it  is  by  no  means  inconsistent  with  it),  there 
will  remain  some  tendency  to  periodicity  in  insolvencies, 
but  such  periods  will  not  be  accompanied  by  any  cessa- 
tion of  industrial  activity.  There  will  be  no  loss  of  pro- 
duction, but  merely  a  transfer  from  lenders  to  borrowers. 
Under  complete  co-operation,  industrial  stagnation  would 
be  impossible,  but  some  loss  of  confidence  might  occur,  as 
the  result  of  disproportion  in  production. 

It  is,  of  course,  true  that  the  production  of  commodi- 
ties under  co-operation  might  be  no  better  fitted  to  the 
needs  of  consumers  than  now,  and  some  cessation,  or 
rather  delay,  of  exchanges  might  occur ;  but  the  conse- 
quent increase  of  dead  stock  could  not  then,  as  now,  tend 
to  any  decrease  in  productive  consumption,  because  then, 
labor  being  eliminated  as  a  commodity,  the  demand  and 
supply  of  commodities  would  be  strictly  the  sum  of  ma- 
terial commodities  themselves.  The  effect  would  be 
that  any  undue  decrease  in  past  unproductive  consump- 


142  CAPITAL  AND  POPULATION. 

tiou  would  soon  be  adjusted  by  a  corresponding  increase 
in  future  unproductive  consumption,  without  productive 
consumption  being  either  increased  or  decreased. 

This  result  of  co-operation,  in  doing  away  with  peri- 
odic declines  in  industrial  activity,  has  not,  that  I  am 
aware  of,  been  before  perceived,  nor  could  it  be,  until 
the  economic  effects  of  over-accumulation  were  recog- 
nized ;  but  it  affords  a  very  powerful  argument  for  its 
adoption  at  the  earliest  practicable  moment.  The  full 
result  will  only  be  obtained  when  the  change  to  co- 
operation is  complete,  but  the  severity  of  each  crisis 
will  be  mitigated  with  every  partial  adoption  of  the 
system. 

While  the  ultimate  effect  of  co-operation  will  be  to 
do  away  with  the  vicissitudes  of  business,  such  vicissi- 
tudes, while  they  remain,  operate  against  co-operation  in 
its  competition  with  the  present  system.  The  propor- 
tional wages  and  profits  combined  of  the  individual  co-op- 
perative  laborer  are  the  same  in  good  and  in  bad  times, 
and  his  remuneration  only  varies  as  the  proportion  of  the 
commodities  he  produces  is  greater  or  less  than  the 
amount  of  the  commodities  the  community  offers  in  ex- 
change for  them ;  but  the  amount  of  employment  in  his 
trade  varies  with  that  in  those  trades  where  the  product 
is  divided,  in  so  far  at  least  as  such  products  are  ex- 
changed for  each  other.  The  little  accumulations,  there- 
fore, of  co-operative  laborers  are  apt  to  be  swept  away 
during  periods  of  stagnation,  and  the  co-operative  enter- 
prise destroyed  through  no  fault  of  the  operatives  them- 
selves, but  as  the  result  of  economic  causes  resulting  from 
the  faults  of  the  competing  system.  This,  together  with 
the  present  moral  and  intellectual  status  of  the  laboring 
classes,  renders  the  establishment  of  any  co-operative  en- 


CO-OPERATIOX.  143 

terprise  very  difficult,  and  it  is,  perhaps,  too  soon  as  yet 
to  hope  for  any  immediate  success,  save  in  exceptional 
circumstances ;  nevertheless,  the  system  should  be  kept 
in  view,  as  the  great  and  ultimate  goal  of  political  en- 
deavor, and  as  the  only  panacea  for  many  of  our  social 
and  economic  evils. 
7 


CHAPTER  X. 


FREE   TRADE   AND   PROTECTION. 

The  argument  in  favor  of  free  trade  is  an  exceed- 
ingly simple  one — so  simple,  that  we  can  not  wonder  at 
the  contempt  felt  for  the  intellectual  capacity  of  those 
writers  who  fail  to  comprehend  it.  To  state  it,  I  can 
not  do  better  than  to  use  the  words  of  Mill,  in  Book  III, 
chapter  xvii,  section  3,  in  which  he  says : 

"We  perceive  la  what  consists  the  benefit  of  international 
exchange,  or,  in  other  words,  foreign  commerce.  Setting  aside  its 
enabling  countries  to  obtain  commodities  which  they  could  not 
themselves  produce  at  all,  its  advantage  consists  in  a  more  efficient 
employment  of  the  productive  forces  of  the  world.  If  two  coun- 
tries which  trade  together  attempted,  as  far  as  was  physically  pos- 
sible, to  produce  for  themselves  what  they  now  import  from  one 
another,  the  labor  and  capital  of  the  two  countries  would  not  be  so 
productive,  the  two  together  would  not  obtain  from  their  industry 
so  great  a  quantity  of  commodities  as  when  each  employs  itself  in 
producing,  both  for  itself  and  for  the  other,  the  things  in  which  its 
labor  is  relatively  most  efficient.  The  addition  thus  made  to  the 
produce  of  the  two  combined  constitutes  the  advantage  of  the 
trade." 

To  every  word  of  which  I  cordially  subscribe,  except 
the  implication  that  the  "  efficiency  of  labor  and  capital " 
is  an  equivalent  term  to  the  "  efficiency  of  labor  "  alone. 
Any  and  every  restriction  upon  commerce  is  undoubtedly 


FREE  TRADE   AND  PROTECTION.  145 

detrimental  to  the  productive  efficiency  of  the  labor  of 
the  world.  But,  when  the  question  is  discussed  of  the 
distribution  of  the  capitalized  wealth  of  the  world  and  of 
its  annual  produce,  I  take  decided  issue  with  the  English 
school  of  political  economy,  and  I  shall  be  able  to  prove 
that  the  free  interchange  of  an  agricultural  with  a  manu- 
facturing country  not  only  may  be,  but  to  a  large  extent 
actually  is,  detrimental  to  the  former,  and  that  the  latter 
may  not  only  gain  all  the  benefit  of  the  increased  pro- 
ductive efficiency,  but  something  besides,  which  some- 
thing is  an  absolute  loss  to  the  agricultural  country, 
against  which  it  can  only  protect  itself  by  discriminating 
duties. 

I  must  first  ask  from  the  reader  a  consideration  of  the 
inherent  differences  between  the  nature  of  the  two  great 
classes  of  industry.     These  differences  are  : 

1.  That  agriculture  can  utilize  much  less  capital  than 
manufactures  in  em/plpying  a  given  population. 

2.  That  the  efficiency  of  labor  is  everywhere  the  same^ 
or  nearly  so  in  manufacturing^  hut  very  variable  in  agri- 
culture in  different  States,  on  account  of  the  latter  effi- 
ciency depending  on  the  national  margin  of  cultivation. 

3.  That  the  efficiency  of  labor  is  uniform  in  manu- 
factures, but  variable  in  agriculture  as  affected  by  the 
vicissitudes  of  the  seasons. 

1.  That  agriculture  can  utilize  much  less  capital  than 
^manufactures  in  employing  a  given  population. 

The  intelligent  reader  can  hardly  have  failed  to  an- 
ticipate me  in  the  application  here  of  the  principle  of  the 
constant  tendency  of  capital  to  outstrip  population.  It 
follows,  from  this  principle,  that  a  country  will  always 
possess,  very  shortly  after  the  need  is  felt,  all  the  capital 


UQ  CAPITAL  AND  POPULATION. 

it  can  employ  at  a  satisfactory  rate  of  profit.  The  opening 
up  of  any  new  avenue  for  investment  inevitably  results 
in  an  increase  of  capitalized  wealth ;  and  I  have  further 
shown  that  such  increase  of  capital,  while  it  is  taking 
place,  is  always  accompanied  by  an  increase  of  produc- 
tion to  several  times  its  own  extent,  and  which  contin- 
ues until  the  new  normal  ratio  of  capital  to  population 
is  attained.  This  result  is  the  necessary  consequence  of 
the  fall  in  proportional  wages  and  rise  in  profits  that  any 
and  every  opportunity  for  profitable  investment  afibrds. 
The  nature  of  a  nation's  industries,  therefore,  as  utilizing 
more  or  less  capital  in  proportion  to  population,  is  a  vital 
one  to  its  productive  efficiency.  This  element  of  national 
productiveness  has  no  effect  upon  its  exchange  of  produce 
with  its  neighbors.  Such  exchange  is  wholly  governed 
by  the  money-cost  at  which  it  and  they  can  produce ;  and 
into  such  cost  both  money- wages  and  profits  enter ;  but  it 
follows,  as  a  result  of  our  whole  argument,  that,  as  a  ques- 
tion of  national  profit  and  loss,  the  comparison  should 
be  simply  between  the  money-cost  of  the  labor  that  can 
produce  the  commodity  at  home  as  compared  with  the 
money-cost  of  that  which  produces  the  articles  exchanged 
for  the  imported  commodity. 

To  illustrate,  let  us  suppose  that  in  America  a  day's 
labor  on  the  poorest  land  will  produce  wheat  of  the  value 
of  $1.65,  $1.50  of  which  is  paid  as  wages,  and  fifteen 
cents  as  the  profit  of  circulating  capital,  at  ten  per  cent, 
and  that  the  product  of  one's  day's  labor  in  manufactur- 
ing woolen  cloth  will  sell  for  $3.15,  composed  of  $1.50 
for  wages,  fifteen  cents  for  profit  on  circulating  capital, 
and  $1.50  for  profit  on  fixed  capital.  (For  the  sake  of 
simplicity,  I  here  suppose  no  fixed  capital  to  be  employed 
in  agriculture,  or,  what  will  amount  to  the  same  thing, 


FREE   TRADE  AND  PROTECTIOlSr.  I47 

the  profit,  rent,  etc.,  on  the  plant  in  woolen  manufact- 
ure to  exceed  the  profit  of  the  agricultural  plant  by  an 
amount  equal  to  the  wages  expended  in  either  case.  The 
supposition  is,  of  course,  an  extravagant  one,  and  only 
made  for  the  sake  of  enforcing  the  principle.)  Let  us 
likewise  suppose  that  in  England  one  day's  labor  on  the 
poorest  land  will  produce  two  thirds  of  what  it  will  in 
America.  Wages  will  then  be  one  dollar  per  day,  and 
the  value  of  the  produce  will  be  $1.10.  The  money-price 
of  wheat  would  be  the  same  in  each  country — as  it  must 
always  be — cost  of  carriage,  etc.,  apart.  Cloth,  however, 
can  be  made  in  England,  under  otherwise  similar  condi- 
tions, for  $2.10  for  the  product  of  a  day's  labor,  one  dol- 
lar of  which  will  be  wages,  ten  cents  profit  on  circulating 
capital,  and  one  dollar  profit  on  fixed  capital.  (This  is 
not  exactly  the  proportion  in  which  English  fixed  capital 
would  enter  into  the  price,  but  it  is  sufficiently  exact  for 
the  purposes  of  this  discussion.  It  is  exact,  as  far  as  Eng- 
lish labor  and  profits  compose  the  cost  of  buildings,  tools, 
etc.,  but  not  as  far  as  raw  agricultural  products  or  import- 
ed articles  enter  into  such  cost ;  in  fact,  the  amount  of 
English  fixed  capital  would  be  larger  than  I  have  stated ; 
and  such  increase,  whatever  it  would  be,  would  entail  a 
further  loss  upon  America  in  excess  of  that  shown  by  the 
calculation.)  America  can  not  import  such  cloth  for  less 
than  $2.10,  and  may  be  forced  to  pay  any  price  between 
$2.10  and  $3.15. 

In  Book  Y,  chapter  x,  section  1,  Mill  says  : 
"  The  amount  of  national  loss  thus  occasioned  (by  protection)  is 
measured  by  the  excess  of  the  price  at  which  the  commodity  is 
produced  over  that  at  which  it  could  be  imported." 

According  to  him,  therefore,  England  gains  nothing ; 
for,  as  we  shall  see  hereafter,  cost  of  carriage,  profits  of 


148  CAPITAL  AND  POPULATION. 

importers,  etc.,  apart,  prices  of  agricultural  produce  must 
be  the  same  in  all  countries  carrying  on  commerce  with 
each  other.  Her  gain  consists  entirely  in  the  rise  in  her 
margin  of  cultivation,  caused  by  her  importation  of  food, 
while  America's  gain  on  importing  the  cloth  is  $1.05,  less 
the  loss  occasioned  by  any  lowering  of  her  margin  of  cul- 
tivation. Strictly  speaking,  the  calculation  according  to 
Mill  should  take  no  account  of  the  margin  of  cultivation, 
as  he  omitted  to  notice  its  effect  upon  the  distribution  of 
the  gain  in  productiveness  ;  as  this,  however,  is  probably 
only  an  error  of  omission  on  his  part,  I  give  him  the 
benefit  of  it  in  my  argument. 

ISTow,  this  apparent  gain  of  America  is  very  much 
greater  than  the  benefit  to  the  world  by  an  English  la- 
borer being  employed  in  making  cloth  instead  of  raising 
wheat,  and  an  American  laborer  in  raising  wheat  instead 
of  making  cloth.  As  it  takes  the  same  amount  of  labor 
in  either  country  to  make  the  cloth,  the  gain  in  the 
amount  of  material  products  is  solely  in  the  increased 
efificiency  of  the  labor  employed  in  growing  wheat.  By 
the  conditions  of  our  problem  this  gain  is  fifty  cents  on 
a  day's  labor,  and,  if  we  accept  Mill's  method  of  calcu- 
lating, America,  under  free  trade,  gains  the  whole  money 
advantage  of  such  trade  and  fifty-five  cents  besides,  while 
England  also  gains  a  substantial  advantage  in  her  margin 
of  cultivation  only  partially  compensated  by  a  smaller 
loss  in  her  margin  to  America.  This  result  is  too  absurd 
to  be  for  a  moment  entertained.  It  is  simply  the  claim 
that  the  parts  can  be  greater  than  the  whole.  The  fifty 
cents  gain  is  divided  into  a  money  gain  of  $1.05,  and 
that  resulting  from  the  disturbance  of  the  two  national 
margins  of  cultivation  (this  last  is  also  a  gain  because 
the  rise  in  the  English  margin,  as  a  matter  of  fact,  is 


FREE  TRADE  AND  PROTECTION".  149 

greater  tliaii  the  fall  in  tlie  American,  on  account  of  tlie 
great  amount  of  our  unoccupied  fertile  lands)  ;  nor  can 
the  dilemma  be  escaped  by  the  claim  that  the  extra  fifty- 
five  cents  of  America's  gain  is  due  to  the  money-cost  of 
English  capital  being  less  than  American.  That  is  the 
true  explanation  of  the  fact,  but,  as  long  as  there  is  no 
gain  in  the  labor-cost  of  such  capital,  its  money -cost  is 
here  a  matter  of  indifference.  The  $1.05,  if  Mill  is 
right,  should  represent  a  material  benefit,  and  not  a  mere 
difference  in  money  values ;  but  we  have  seen  that  fifty 
cents,  and  the  gain  through  the  English  margin  being 
raised  more  than  the  American  has  been  depressed,  is  the 
extent  of  the  material  benefit  to  the*  world,  and  this  has 
now  become  a  gain  of  $1.05,  and  the  gain  in  the  margins 
besides,  and  free-traders  have  the  further  anomaly  to  ex- 
plain, how  it  happens  that  agricultural  nations,  to  whom, 
according  to  them,  more  than  the  whole  gain  of  com- 
merce accrues,  remain  poor,  notwithstanding  the  greater 
fertility  of  their  soil ;  while  manufacturing  nations,  who 
receive  none  of  it,  are  the  richest  nations  of  the  earth, 
despite  their  comparative  sterility. 

IS'ow,  let  us  consider  the  problem  in  consonance  with 
the  views  advanced  in  this  treatise.  If  America  pro- 
tected her  woolen  manufacture,  as  soon  as  she  had  ac- 
cumulated the  requisite  capital,  she  would  obtain  a  day's 
product  of  cloth  with  the  same  labor  the  product  of 
which  she  formerly  sold  to  England  for  $1.65  ;  but  for 
a  day's  product  of  English  labor  she  was  forced  to  pay 
$2.10  or  over.  She,  therefore,  formerly  obtained  for 
herself  none  of  the  benefit  of  the  increased  productive- 
ness of  labor,  and  lost  forty-five  cents  besides,  even  when 
she  obtained  her  cloth  at  the  least  possible  price.  Eng- 
land, on  the  other  hand,  sold  to  America  the  product  of 


150  CAPITAL  AND  POPULATION. 

a  day's  labor  for  $2.10,  which  would  have  only  brought 
her  if  employed  in  agriculture  a  value  of  $1.10.  She 
formerly,  therefore,  gained  the  whole  profit  in  the  inter- 
national exchange,  and  fifty  cents  besides,  forty-five  cents 
of  which  was  at  the  expense  of  America,  and  five  cents 
represented  the  profit  saved  on  the  extra  circulating  capi- 
tal necessary  to  employ  an  American  over  an  English 
laborer,  or,  in  other  words,  it  is  the  profit  on  the  addi- 
tional production  of  fifty  cents.  The  American  con- 
sumer does  indeed  pay  $3.15  for  an  article  he  could 
import  for  $2.10,  but  the  gross  sum  of  the  national 
profits  is  larger  by  $1.50,  and  the  gross  revenue  of  the 
whole  people  greater  by  at  least  forty-five  cents,  to  which 
must  be  added  the  gain  accruing  from  the  consequent 
rise  in  the  margin  of  cuhivation. 

Let  us  now  change  the  supposition,  and  suppose  that 
the  cost  of  woolen  cloth  is  composed  of  profits  only  to  the 
extent  of  one  quarter  the  sum  paid  the  artisans  as  wages. 
The  cost  of  a  day's  product  of  cloth  in  England  will  then 
be  $1.35  and  its  cost  at  home  $2.02f,  the  rate  of  profit, 
as  before,  being  ten  per  cent  alike  in  both  countries. 
America  will  now  gain  thirty  cents  by  the  interchange  of 
commodities,  and  England  twenty  cents  plus  the  ^ve 
cent  profit  on  extra  circulating  capital,  as  before. 

It  would  seem  at  first  sight  that  America,  in  this  case, 
gained  the  greater  part  of  the  mutual  advantage,  but  that 
is  not  actually  the  case ;  to  really  do  so,  she  should  gain 
nearly  the  whole,  or  at  least  such  part  of  the  fifty  cents 
as  represents  half  the  real  advantage  to  the  world  of  her 
employing  her  laborers  in  agriculture  instead  of  manufact- 
ures. Proper  allowance  must  be  made  for  the  effect  of 
free  trade  upon  the  margin  of  cultivation.  If  England 
with  her  present  population  was  forced  to  raise  all  her 


FREE  TRADE  AND  PROTECTION".  151 

own  food,  her  margin  would  be  so  low  tliat  she  would 
perhaps  produce,  with  the  same  amount  of  labor  on  her 
poorest  lands,  only  half  the  produce  we  now  get  from  our 
poorest  lands.  This  would  add  twentj-five  cents  to  her 
gain,  in  the  case  we  have  supposed,  and  make  the  total 
fifty  cents,  while  a  subtraction  must  be  made  from  Amer- 
ica's apparent  gain  of  thirty  cents,  to  allow  for  any  low- 
ering of  her  margin,  on  account  of  employing  more  of 
her  labor  in  agriculture.  If  we  suppose  that,  under  pro- 
tection, on  the  poorest  lands  then  cultivated,  ten  per  cent 
less  labor  than  formerly  was  required  for  the  same  prod- 
uce, her  real  gain  under  free  trade  would  be  only  fifteen 
cents,  while  England's  would  be  fifty  cents ;  the  gain  to 
the  world  would  then  be  sixty  cents,  composed  of  fifty 
cents  former  difference  in  the  efificiency  of  labor,  plus 
twenty-five  cents  the  gain  of  England  on  the  rise  of  her 
margin,  and  less  fifteen  cents  the  loss  of  America  on  the 
decline  of  her  margin,  (The  '^yg  cents  as  before  repre- 
sents the  profit  on  the  increased  production,  and  affects 
the  distribution  only,  not  the  creation  of  wealth.)  The 
rate  of  profit  in  both  being  the  same,  and  all  other  things 
being  equal,  a  manufacturing  country  will  always  gain 
the  larger  proportion  of  the  benefit  accruing  from  trade, 
and,  if  the  article  be  one  into  the  cost  of  which  profits 
enter  largely,  it  may  appropriate  to  itself  more  than  the 
whole  gain,  the  excess  being  at  the  expense  of  the  agri- 
cultural. If  the  normal  rate  of  profit,  as  is  usually  the 
case,  is  less  in  the  manufacturing  than  in  the  agricultural, 
or  if  the  rate  in  both  should  be  less  than  the  rate  we  have 
supposed,  the  actual  loss  to  the  latter  will  be  lessened,  or, 
as  the  case  may  be,  her  share  of  the  gain  to  the  world 
will  be  increased,  hut  it  can  never  quite  equal  one  half 
of  such  gain,    I  must  not  be  understood  as  claiming  that 


152  CAPITAL  AND  POPULATION. 

the  element  of  profit,  as  affecting  cost  of  production,  is 
usually  great  enough  of  itself  alone  to  justify  protective 
duties,  but  only  that  it  lessens  very  materially  the  propor- 
tion of  the  benefits  of  free  trade  to  an  agricultural  nation 
as  compared  with  what  would  accrue  on  an  equal  division 
of  such  benefit,  and  that,  in  connection  with  the  effect 
upon  the  margin  of  cultivation,  the  employment  of  other- 
wise idle  labor,  the  transmutation  of  common  into  skilled 
labor,  and  of  effects  upon  the  equation  of  international 
demand,  to  be  hereafter  noticed,  it  will  justify  protective 
duties  in  most  of  the  instances  in  which  they  have  been 
imposed,  if  the  increase  of  mere  national  prosperity  be 
accepted  as  such  justification. 

Whether  the  importation  of  any  article,  the  equation 
of  international  demand  being  even,  is  actually  causing  a 
gain  or  loss  to  the  country,  can  be  ascertained  pretty  ac- 
curately by  comparing  the  imported  cost  of  such  article 
with  the  lahor-cost  of  producing  it  at  home,  together 
with  an  addition  for  the  profit  of  circulating  capital  em- 
ployed. From  the  result  obtained  allowance  must  be 
made  for  the  effect  of  protecting  or  importing  the  article 
upon  the  margin  of  cultivation  and  upon  the*  employ- 
ment of  female  or  other  wasted  labor,  and  the  substitu- 
tion of  highly  paid  skilled  for  the  lowly  paid  common 
labor. 

There  is  no  disputing  the  fact  that  manufacturing  are 
uniformly  richer  in  capitalized  wealth  than  agricultural 
countries,  and  that,  despite  their  lower  margin  of  cultiva- 
tion, their  annual  produce  is  nearly,  if  not  quite,  as  large 
jper  capita.  That  of  England  and  America  is,  as  nearly 
as  can  be  calculated  from  statistics,  about  the  same,  not- 
withstanding that  England's  margin  is  lower  than  ours  by 
over  one  third.     These  results  must  be  attributed  wholly 


FREE  TRADE  AND  PROTECTIOK  153 

to  moral  causes,  if  Mill's  views  as  to  accumulation  and  the 
distribution  of  wealth  under  free  trade  are  accepted; 
whereas,  under  the  views  here  presented,  they  are  the 
natural  outcome  of  economic  law,  and  afford  a  substantial 
verification  of  the  views  themselves.  While  to  assert 
that  England  is  richer  than  we  in  capitalized  wealth,  and 
produces  annually  an  equal  value  jper  cwpita,  notwith- 
standing our  superior  natural  resources,  because  of  the 
moral  superiority  and  greater  thriftiness  of  her  popula- 
tion, will  hardly  avail  to  convince  many  of  the  soundness 
of  Mill's  deductions. 

It  may,  however,  be  useful  in  this  connection  to  again 
quote  from  the  "  Principles  of  Political  Economy."  In 
Book  Y,  chapter  x,  section  1,  I  find  the  passage : 

"  It  was  shown,  however,  in  our  analysis  of  the  eflfects  of  inter- 
national trade,  as  it  had  been  often  shown  by  former  writers,  that 
the  importation  of  foreign  commodities,  in  the  common  course  of 
traffic,  never  takes  place,  except  when  it  is,  economically  speaking, 
a  national  good^  by  causing  the  same  amount  of  commodities  to  be 
obtained  at  a  smaller  cost  of  labor  and  capital  to  the  country.  To 
prohibit,  therefore,  this  importation,  or  to  impose  duties  which  pre- 
vent it,  is  to  render  the  labor  and  capital  of  the  country  less  efficient 
in  production  than  they  would  otherwise  be,  and  compel  a  waste  of 
the  difference  between  the  labor  and  capital  necessary  for  the  home 
production  of  the  commodity  and  that  which  is  required  for  produc- 
ing the  things  with  which  it  can  be  purchased  from  abroad." 

My  position  is,  that  while  the  actual  interchange  of 
goods  under  free  trade  will  be  in  accordance,  as  is  here 
claimed,  with  the  efficiency  of  both  labor  and  capital,  and 
that  the  interest  of  the  world  at  large  will  also  be  sub- 
served by  any  increase  of  the  efficiency  of  its  labor,  the 
distribution  of  the  advantage  depends  on  other  principles, 
and  the  individual  interests  of  the  different  nations  are 
regulated  by  other  considerations,  and  that  while  a  nation 


154  CAPITAL  AND  POPULATION'. 

loses,  as  Mill  claims,  from  diverting  its  labor  to  industries 
in  whicli  it  is  less  efficient,  it  does  not  lose  by  the  ac- 
companying diversion  of  its  capital,  as  such  diversion, 
if  toward  industries  employing  greater  capital  than  its 
old  ones,  allows  otherwise  impossible  accumulations  to 
be  made  without  depressing,  and  even  for  a  time  in- 
creasing, the  rate  of  profit,  and  the  aggregate  amount 
of  profits  it  thus  enjoys  may  be  greatly  enhanced,  and 
that,  while  a  part  of  such  increase  of  profits  will  be  at 
the  expense  of  the  home  consumer,  it  will  not  all  be 
BO,  but  will  result  in  a  substantial  increase  in  the  net  rev- 
enue of  the  country,  sometimes  less  and  sometimes  great- 
er, but  in  all  cases  to  be  offset  against  the  loss  in  the  effi- 
ciency of  its  labor,  which  we  allow  will  occur,  before  it 
can  be  affirmed  that  a  net  loss  results  to  such  country. 

And  the  reason  that  Mill  failed  to  appreciate  this  re- 
sult of  protection  can  be  gathered  from  the  following 
passage  from  Book  I,  chapter  v,  section  1 : 

"Had  legislators  been  aware  that  industry  is  limited,  ly  capital^ 
they  would  have  seen  that  the  aggregate  capital  of  the  country  not 
having  been  increased,  any  portion  of  it  which  they  by  their  laws 
had  caused  to  he  embarked  in  the  newly-acquired  branch  of  indus- 
try must  have  been  withdrawn  or  withheld  from  some  other ;  in 
which  it  gave,  or  would  have  given,  employment  to  probably  about 
(?)  the  same  quantity  of  labor  which  it  employs  in  its  new  occupa- 
tion." 

Industry  is  not  limited  by  the  extent  of  capital  as  de- 
fined by  himself,  but  only  by  the  extent  of  the  wages- 
fund  or  capital  in  Ricardo's  sense.  On  the  contrary,  the 
increase  of  capital,  needed  for  protected  industries,  is  not 
drawn  from  the  wages-fund,  but  from  dead  stock,  and 
tends  to  an  increase  of  the  wages-fund,  because  it  in- 
creases the  rate  of  profit  upon  which  the  amount  of  capi- 


FREE  TRADE  AND  PROTECTION.  155 

tal  in  the  sense  of  this  quotation — i.  e.,  the  wages-fund — 
really  depends.  The  increase  is  ultimately  drawn  from 
the  products  of  an  increased  employment  of  labor,  to 
which  the  demand  for  the  increase  itself  inevitably  leads. 

^.  That  the  efficiency  of  labor  is  everijwhere  the 
same^  or  nearly  so,  in  manufacturing,  hut  very  variaUe 
in  different  States,  in  agriculture  ;  on  account  of  the  lat- 
ter efficiency  depending  on  the  national  margin  of  culti- 
vation. 

When  I  say  that  the  efficiency  of  labor  is  everywhere 
the  same,  or  nearly  so,  in  manufacturing,  I  do  not  mean 
to  be  understood  as  denying  or  belittling  the  differences 
in  the  mental  and  physical  efficiency  of  different  races 
and  nations  of  men,  but  I  do  mean  to  say  that  their  com- 
parative natural  efficiency  in  manufacturing  and  in  culti- 
vating lands  of  the  same  fertility  does  not  much  differ. 
The  labor  of  the  rice-fed  Chinamen  is  far  less  effective 
than  that  of  the  Anglo-Saxon,  but  the  degree  in  which  it 
is  so  in  manufacturing  is  not  much  different  from  what 
it  is  in  the  cultivation  of  the  soil,  except,  indeed,  as  such 
degree  of  efficiency  depends  upon  specially  acquired  skill 
resulting  from  the  nature  of  past  activities,  and  which 
practice  in  the  unaccustomed  industries  would  soon  rec- 
tify. 

As  Mill  says  in  Book  I,  chapter  vii,  section  4 : 

*'  The  third  element  which  determines  the  productiveness  of  the 
labor  of  a  community  is  the  skill  and  knowledge  therein  existing ; 
whether  it  be  the  skill  and  knowledge  of  the  laborers  themselves,  or 
of  those  who  direct  their  labor.  No  illustration  is  requisite  to 
show  how  the  efficacy  of  industry  is  promoted  by  the  manual  dex- 
terity of  those  who  perform  mere  routine  processes ;  by  the  intelli- 
gence of  those  engaged  in  operations  in  which  the  mind  has  a  con- 
siderable part ;  and  by  the  amount  of  knowledge  of  natural  powers 


156  CAPITAL  AND  POPULATION. 

and  of  the  properties  of  objects,  which  is  turned  to  the  purposes  of 
industry.  That  the  productiveness  of  the  labor  of  a  people  is  lim- 
ited by  their  knowledge  of  the  arts  of  life,  is  self-evident ;  and  that 
any  progress  in  those  arts,  any  improved  application  of  the  objects 
or  powers  of  nature  to  industrial  uses,  enables  the  same  quantity 
and  intensity  of  labor  to  raise  a  greater  produce." 

But  as  Mill  acknowledges  that  protective  duties  are 
defensible  for  the  purpose  of  acquiring  such  skill  and  apt- 
itude, I  will  not  dwell  upon  the  point,  although  he  has 
been  denounced  for  this  opinion  by  the  more  ultra  of  his 
followers,  further  than  to  call  attention  to  the  fact  that 
the  temporary  increase  of  industrial  activity, that  ensues 
upon  the  protection  of  manufactures,  itself  provides  a 
fund  more  than  sufficient  for  such  educational  purposes  ; 
and  to  quote  the  passage  from  Book  Y,  chapter  x,  section 
1,  in  which  he  thus  expresses  himself : 

"  The  only  case  in  which,  on  mere  principles  of  political  economy, 
protecting  duties  can  be  defensible,  is  when  they  are  imposed  tem- 
porarily (especially  in  a  young  and  rising  nation)  in  hopes  of  natu- 
ralizing a  foreign  industry,  in  itself  perfectly  suitable  to  the  circum- 
stances of  the  country.  The  superiority  of  one  country  over  an- 
other in  a  branch  of  production  often  arises  only  from  having  begun 
it  sooner.  There  may  be  no  inherent  advantage  on  one  part,  or  dis- 
advantage on  the  other,  but  only  a  present  superiority  of  acquired 
skill  and  experience.  A  country  which  has  this  skill  and  experience 
yet  to  acquire,  may  in  other  respects  be  better  adapted  to  the  pro- 
duction than  those  which  were  earlier  in  the  field ;  and,  besides,  it 
is  a  just  remark  of  Mr.  Rae  that  nothing  has  a  greater  tendency  to 
promote  improvements  in  any  branch  of  production  than  its  trial 
under  a  new  set  of  conditions.  But  it  can  not  be  expected  that  in- 
dividuals should,  at  their  own  risk,  or  rather  to  their  certain  loss, 
introduce  a  new  manufacture,  and  bear  the  burden  of  carrying  it  on 
until  the  producers  have  been  educated  up  to  the  level  of  those 
with  whom  the  processes  are  traditional.  A  protecting  duty,  con- 
tinued for  a  reasonable  time,  will  sometimes  be  the  least  incon- 
venient mode  in  which  the  nation  can  tax  itself  for  the  support  of 


FREE  TRADE  AND  PROTECTION.  157 

such  an  experiment.  But  the  protection  should  be  confined  to  cases 
in  which  there  is  good  ground  of  assurance  that  the  industry  which 
it  fosters  will  after  a  time  be  able  to  dispense  with  it ;  nor  should 
the  domestic  producers  ever  be  allowed  to  expect  that  it  will  be 
continued  to  them  beyond  the  time  necessary  for  a  fair  trial  of  what 
they  are  capable  of  accomplishing." 

Nor  do  I  overlook  the  fact  that  some  increase  of  the 
efficiency  of  labor  engaged  in  manufactures  follows  upon 
their  concentration  in  particular  localities.  As  Mill  sajs 
in  Book  lY,  chapter  ii,  section  2 : 

"  The  larger  the  scale  on  which  manufacturing  operations  are 
carried  on,  the  more  cheaply  they  can  in  general  be  performed. 
Mr.  Senior  has  gone  the  length  of  enunciating,  as  an  inherent  law  of 
manufacturing  industry,  that  in  it  increased  production  takes  place 
at  a  smaller  cost,  while  in  agricultural  industry,  increased  produc- 
tion takes  place  at  a  greater  cost.  I  can  not  think,  however,  that 
even  in  manufactures,  increased  cheapness  follows  increased  pro- 
duction by  anything  amounting  to  a  law.  It  is  a  probable  and 
usual,  but  not  a  necessary  consequence." 

With  this  passage  I  fully  agree,  and  what  eiFect  the 
principle  has  must  be  regarded  as  a  deduction  from  the 
results  here  obtained,  and  neglected,  not  because  it  is  un- 
real, but  because  it  is  of  no  great  consequence,  and  per- 
haps nearly,  if  not  quite,  offset  by  other  economic  ad- 
vantages, not  elsewhere  noticed  by  me,  that  ensue  from 
the  dispersion  of  such  industries;  as,  for  instance,  the 
greater  chance  of  inventions  and  improvements  being 
made  when  the  same  industry  is  carried  on  by  many 
nations  and  races,  than  when  it  is  monopolized  by  one  or 
two  only. 

Nor  do  I  at  all  deny  that  climate,  soil,  and  the  min- 
eral products  of  a  country  do,  to  some  extent,  affect  the 
efficiency  of  her  artisan  labor.  The  climate  of  Southern 
Europe  affords  the  people  there  advantages  in  the  pro- 


158  CAPITAL  AND  POPULATION. 

duction  of  wine,  which,  from  the  amount  of  capital  it 
engages,  may  be  economically  considered  rather  as  a  com- 
modity than  as  a  raw  product,  and  the  dampness  of  her 
atmosphere  yields  a  certain  advantage  to  England  in  spin- 
ning cotton,  and  her  mines  of  iron  and  coal  give  her  a 
natural  advantage  over  her  Continental  neighbors  in  the 
efficiency  of  her  artisan  labor.  The  labor-cost  is  less  to 
her  than  to  them,  but  she  does  not  possess  this  advan- 
tage over  us,  as  what  makes  cheap  iron  and  coal,  for  the 
purposes  of  this  discussion,  is  not  so  much  the  fact  that 
they  are  extracted  by  cheap,  as  by  little  labor.  In  the 
natural  fertility  of  her  mines  and  their  abundance,  she 
is  inferior  rather  than  superior  to  America.  Being  an 
industry  in  which  the  employment  of  capital  is  large,  the 
labor- cost  is  much  more  to  be  considered  than  the  money- 
price. 

I  grant  at  once  that  no  endeavor  should  be  made  to 
overcome  by  means  of  protective  duties  any  real  natural 
advantages  in  manufacturing,  possessed  by  foreign  na- 
tions, and  that,  unless  such  advantages  are  inconsiderable, 
the  attempt  to  overcome  them  will  probably  result  in  a 
national  loss. 

I  am  justified,  however,  in  asserting  that  what  differ- 
ences there  are  in  manufacturing  efficiency  are  mainly 
artificial,  and  that  the  process  of  acquiring  them  may  be 
regarded  as  educational ;  often,  indeed,  expensive,  but 
justified  by  the  result,  if  followed  ultimately  by  any  in- 
crement in  the  amount  of  the  national  produce. 

As  to  the  efficiency  of  labor  in  agriculture,  the  case 
is  very  different.  Equal  physical  power  and  intelligence, 
vicissitudes  of  the  seasons  apart,  will  command  an  equal 
produce  only  from  lands  of  the  same  inherent  fertility. 
Every  variation  in  the  quality  of  the  soil  entails  a  vari- 


FREE  TRADE  AND  PROTECTION.  159 

ance  in  the  crops  gathered  from  it.  When  the  efficiency 
of  a  nation's  agricultural  labor  is  lowered  by  poorer  lands 
being  put  under  cultivation,  the  efficiency  of  her  labor 
employed  upon  the  lands  previously  cultivated  is  not  dis- 
turbed, but  a  different  distribution  of  their  produce  re- 
sults. iJ^either  profits  nor  proportional  wages  are  caused 
thereby  to  vary,  but  rent  is  increased  at  the  expense  of 
real  wages,  and  the  money  value  of  agricultural  produce 
continuing  the  same,  as  it  may,  unless  affected  by  other 
causes,  money-wages  will  also  decline  to  the  same  extent 
as  real. 

Premising  this  much,  I  submit  to  the  consideration  of 
the  reader  the  following  extract  from  Mill's  "  Principles," 
Book  III,  chapter  xxv,  sections  2  and  4 : 

"  Section  2.  According  to  the  preceding  doctrine,  a  country  can 
not  be  undersold  in  any  commodity,  unless  the  rival  country  has  a 
stronger  inducement  than  itself  for  devoting  its  labor  and  capital 
to  the  production  of  the  commodity ;  tirising  from  the  fact  that  by 
doing  so  it  occasions  a  greater  saving  of  labor  and  capital,  to  be 
sliared  between  itself  and  its  customers — a  greater  increase  of  the 
aggregate  produce  of  the  world.  The  underselling,  therefore,  though 
a  loss  to  the  undersold  country,  is  an  advantage  to  the  world  at 
large  ;  the  substituted  commerce  being  one  which  economizes  more 
of  the  labor  and  capital  of  mankind,  and  adds  more  to  their  col- 
lective wealth,  than  the  commerce  superseded  by  it.  The  advan- 
tage, of  course,  consists  in  being  able  to  produce  the  commodity  of 
better  quality,  or  with  less  labor  (compared  with  other  things) ;  or 
perhaps,  not  with  less  labor,  but  in  less  time;  with  a  less  prolonged 
detention  of  the  capital  employed.  This  may  arise  from  greater 
natural  advantages  (such  as  soil,  climate,  richness  of  mines) ;  supe- 
rior capability,  either  natural  or  acquired,  in  the  laborers;  better 
division  of  labor,  and  better  tools  or  machinery.  But  there  is  no 
place  left  in  this  theory  for  the  case  of  lower  wages.  This,  how- 
ever, in  the  theories  commonly  current,  is  a  favorite  cause  of  under- 
selling. "We  continually  hear  of  the  disadvantage  under  which  the 
British  producer  labors,  both  in  foreign  markets,  and  even  in  his 


160  CAPITAL  AND  POPULATIOJST. 

own,  through  the  low  wages  paid  by  his  foreign  rivals.  These 
lower  wages,  we  are  told,  enable,  or  are  always  on  the  point  of 
enabling,  them  to  sell  at  lower  prices,  and  to  dislodge  the  English 
manufacturer  from  all  markets  in  which  he  is  not  artificially  pro- 
tected. 

"Before  examining  this  opinion  on  grounds  of  principle,  it  is 
worth  while  to  bestow  a  moment's  consideration  upon  it  as  a  ques- 
tion of  fact.  Is  it  true  that  the  wages  of  manufacturing  labor  are 
lower  in  foreign  countries  than  in  England,  in  any  sense  in  which 
low  wages  are  an  advantage  to  the  capitalist?  The  artisan  of 
Ghent  or  Lyons  may  earn  less  wages  in  a  day,  but  does  he  not  do 
less  work?  Degrees  of  efficiency  considered,  does  his  labor  cost 
less  to  his  employer  ?  Though  wages  may  be  lower  on  the  Conti- 
nent, is  not  the  cost  of  labor,  which  is  the  real  element  in  the  com- 
petition, very  nearly  the  same  ?  That  it  is  so,  seems  the  opinion  of 
competent  judges,  and  is  confirmed  by  the  very  little  difference  in 
the  rate  of  profit  between  England  and  the  Continental  countries. 
But  if  so,  the  opinion  is  absurd  that  English  producers  can  be  un- 
dersold by  their  Continental  rivals  from  this  cause.  It  is  only  in 
America  that  the  supposition  is  'prima  facie  admissible.  In  Amer- 
ica wages  are  much  higher  than  in  England,  if  we  mean  by  wages 
the  daily  earnings  of  a  laborer ;  but  the  productive  power  of  Amer- 
ican labor  is  so  great — its  efiiciency,  combined  with  the  favorable 
circumstances  in  which  it  is  exerted,  makes  it  worth  so  much  to  the 
purchaser — that  the  cost  of  labor  is  lower  in  America  than  in  Eng- 
land ;  as  is  indicated  by  the  fact  that  the  general  rate  of  profits  and 
of  interest  is  higher. 

"  But  is  it  true  that  low  wages,  even  in  the  sense  of  low  cost  of 
labor,  enable  a  country  to  sell  cheaper  in  the  foreign  market?  I 
mean,  of  course,  low  wages  which  are  common  to  the  whole  pro- 
ductive industry  of  the  country. 

"If  wages,  in  any  of  the  departments  of  industry  which  supply 
exports,  are  kept  artificially,  or  by  some  accidental  cause,  below  the 
general  rate  of  wages  in  the  country,  this  is  a  real  advantage  in  the 
foreign  market.  It  lessens  the  comparative  cost  of  production  of 
those  articles,  in  relation  to  others;  and  has  the  same  effect  as  if 
their  production  required  so  much  less  labor. 

"  Sec.  4.  These  two  cases  of  slave-labor  and  of  domestic  manu- 
factures exemplify  the  conditions  under  which  low  wages  enable  a 


FREE  TRADE  AND  PROTECTION.  161 

country  to  sell  its  comraodities  cheaper  in  foreign  markets,  and  con- 
sequently to  undersell  its  rivals,  or  to  avoid  being  undersold  by 
them.  But  no  such  advantage  is  conferred  by  low  wages  when 
common  to  all  branches  of  industry.  General  low  wages  never 
caused  any  country  to  undersell  its  rivals,  nor  did  general  high 
wages  ever  hinder  it  from  doing  so. 

"  To  demonstrate  this,  we  must  return  to  an  elementary  princi- 
ple which  was  discussed  in  a  former  chapter.*  General  low  wages 
do  not  cause  low  prices,  nor  high  wages  high  prices,  within  the 
country  itself.  General  prices  are  not  raised  by  a  rise  of  wages, 
any  more  than  they  would  be  raised  by  an  increase  of  the  quantity 
of  labor  required  in  all  production.  Expenses  which  affect  all  com- 
modities equally,  have  no  influence  on  prices.  If  the  maker  of 
broadcloth  or  cutlery,  and  nobody  else,  had  to  pay  higher  wages, 
the  price  of  his  commodity  would  rise,  just  as  it  would  if  he  had  to 
employ  more  labor ;  because  otherwise  he  would  gain  less  profit 
than  other  producers,  and  nobody  would  engage  in  the  employment. 
But  if  everybody  has  to  pay  higher  wages,  or  everybody  to  employ 
more  labor,  the  loss  must  be  submitted  to;  as  it  affects  everybody 
alike,  no  one  can  hope  to  get  rid  of  it  by  a  change  of  employment ; 
each,  therefore,  resigns  himself  to  a  diminution  of  profits,  and  prices 
remain  as  they  were.  In  like  manner,  general  low  wages,  or  a  gen- 
eral increase  in  the  productiveness  of  labor,  does  not  make  prices 
low,  but  profits  high.  If  wages  fall  {meaning  here  ly  wages  the  cost 
of  labor),  why,  on  that  account,  should  the  producer  lower  his  price  ? 
Re  will  he  forced,  it  may  te  said,  hy  the  competition  of  other  capi- 
talists who  will  crowd  into  his  employment.  But  other  capitalists 
are  also  paying  lower  wages,  and  hy  entering  into  competition  with 
him  they  would  gain  nothing  hut  what  they  are  gaining  already. 
The  rate,  then,  at  which  labor  is  paid,  as  well  as  the  quantity  of  it 
which  is  employed,  affects  neither  the  value  nor  the  price  of  the 
commodity  produced,  except  in  so  far  as  it  is  peculiar  to  that  com- 
modity, and  not  common  to  commodities  generally. 

"  Since  low  wages  are  not  a  cause  of  low  prices  in  the  country 
itself,  so  neither  do  they  cause  it  to  offer  its  commodities  in  foreign 
markets  at  a  lower  price.  It  is  quite  true  that,  if  the  cost  of  labor 
is  lower  in  America  than  in  England,  America  could  sell  her  cottons 

*  Supra,  Book  III,  chapter  iv. 


162  CAPITAL  AND  POPULATION". 

to  Cuba  at  a  lower  price  than  England,  and  still  gain  as  high  a 
profit  as  the  English  manufacturer.  But  it  is  not  with  the  profit  of 
the  English  manufacturer  that  the  American  cotton-spinner  will 
make  his  comparison ;  it  is  with  the  profits  of  other  American  capi- 
talists. These  enjoy,  in  common  with  himself,  the  benefit  of  a  low 
cost  of  labor,  and  have  accordingly  a  high  rate  of  profit.  This  high 
profit  the  cotton-spinner  must  also  have ;  he  will  not  content  him- 
self with  the  English  profit.  It  is  true  he  may  go  on  for  a  time  at 
that  lower  rate,  rather  than  change  his  employment;  and  a  trade 
may  be  carried  on,  sometimes  for  a  long  period,  at  a  much  lower 
profit  than  that  for  which  it  would  have  been  originally  engaged 
in.  Countries  which  have  a  low  cost  of  labor  and  high  profits,  do 
not  for  that  reason  undersell  others,  but  they  do  oppose  a  more 
obstinate .  resistance  to  being  undersold,  because  the  producers  can 
often  submit  to  a  diminution  of  profit  without  being  unable  to 
live,  and  even  to  thrive,  by  their  business.  But  this  is  all  which 
their  advantage  does  for  them ;  and  in  this  resistance  they  will 
not  long  persevere,  when  a  change  of  times,  which  may  give 
them  equal  profits  with  the  rest  of  their  countrymen,  has  become 
manifestly  hopeless." 

It  is  difficult  to  gather  from  this  passage  the  sense  in 
which  Mill  uses  the  term  "  wages  "  ;  if  he  means  propor- 
tional wages,  what  he  sajs  in  section  2  is  true,  provided 
general  prices  are  not  affected.  If  prices  are  lowered,  the 
supposed  country  is  enabled  to  undersell  others  in  foreign 
markets ;  if  prices  are  raised,  they  are  enabled  to  under- 
sell it.  But  in  the  ordinary  course  of  affairs  a  change  in 
general  prices  affects  the  rate  of  proportional  wages  more 
than  any  change  in  money- wages.  A  rise  of  prices, 
money-wages  remaining  the  same,  lowers  the  rate,  and  a 
fall  raises  it,  and  to  such  extent  that  in  times  of  activity 
the  rate  is  lowered  notwithstanding  the  rise  in  money- 
wages  that  then  occurs,  and  in  stagnant  times  the  rate  is 
raised  notwithstanding  money- wages  being  cut  down.  A 
rise  or  fall  of  proportional  wages  is  not  a  cause  of,  but  is 


FREE  TRADE  AND  PROTECTION.  163 

always  accompanied  by,  because  it  is  usually  in  part 
caused  by,  a  fall  or  rise  in  general  prices,  and  this  latter 
does  affect  the  ability  to  sell  or  be  undersold  in  foreign 
markets.  Mill  is  here  speaking,  probably,  not  of  its 
fluctuations,  but  of  the  permanent  rise  of  the  rate  which 
naturally  occurs  in  nations  with  large  accumulations. 
Such  rise  in  proportional  wages  has,  of  course,  no  effect. 
But  Mill  persistently  confounds  real  and  proportional 
wages,  and  a  fall  in  real  wages  does  profoundly  affect  the 
ability  of  a  nation  to  compete  in  foreign  markets.  It  in- 
creases the  efficiency  of  labor  and  capital  in  manufactures 
as  compared  with  that  in  agriculture.  When  it  occurs  in 
a  manufacturing  nation  it  enables  her  to  cheapen  the 
manufactured  goods  which  constitute  her  exports,  while 
it  lessens  to  an  agricultural  people  their  comparative  dis- 
advantage in  manufacturing.  This  results  from  the  fact 
that  profits  constitute  a  greater  proportion  of  the  cost  of 
goods  than  of  raw  products.  It  is  true,  as  Mill  says,  that 
"  general  low  wages  do  not  cause  "  (average)  "  low  prices 
nor  high  wages  "  (average)  "  high  prices  within  the  coun- 
try itself,"  but  they  do  affect  the  relative  prices  of  the 
commodities  or  products  that  form  the  bulk  of  a  nation's 
exports,  and  do  therefore  affect  its  ability  to  undersell  or 
its  liability  to  be  undersold.  It  is,  indeed,  absurd,  as  MiU 
says,  to  assert  that  a  high  rate  of  proportional  wages  in  a 
manufacturing  country,  like  England,  enables  her  com- 
petitors to  undersell  her  in  the  markets  of  the  world  ;  but 
it  is  absurd  not  for  the  reason  Mill  gives,  that  her  ability 
to  compete  in  such  markets  is  not  at  all  affected  by  the 
increase  of  the  rate,  but  because  the  direct  contrary  of 
the  assertion  is  true,  and  any  increase  in  her  rate  of  pro- 
portional wages  aids  her  to  undersell  them  in  the  articles 
of  which  her  exports  are  mainly  composed,  because  any 


164  CAPITAL  AND  POPULATION. 

lowering  of  tlie  rate  of  profit  lowers  manufactured  goods 
as  compared  with  raw  products.     Mill  says : 

"  If  wages  fall  {meaning  ly  wages  the  cost  of  labor\  why,  on  that 
account,  should  the  producer  lower  his  price?  He  will  be  forced,  it 
may  be  said,  by  the  competition  of  other  capitalists  who  will  crowd 
into  his  employment ;  but  other  capitalists  are  also  paying  lower 
wages,  and  by  entering  into  competition  with  him  they  would  gain 
nothing  but  what  they  are  gaining  already." 

This  latter  assertion  is  untrue,  and  is  equivalent  to 
the  denial  that  a  high  rate  of  profit  will  lead  to  any  in- 
crease in  industrial  activity.  All  other  capitalists  are  not 
"  also  paying  lower  wages,"  because  many  of  them  are 
not  paying  any  wages  at  all,  or  at  least  are  employing 
less  labor  than  they  might  if  they  choose  to  convert  more 
of  their  dead  into  active  stock.  This  class  would  most 
certainly  "  crowd  into  his,"  and  every  other,  "  employ- 
ment" on  the  occurrence  of  any  fall  in  proportional 
wages,  until  prices  are  again  lowered  by  the  consequent 
increase  of  the  ratio  of  capital  to  population. 

But  what  does  Mill  intend  by  "  cost  of  labor  "  ?  In 
the  use  of  the  word  by  his  opponents,  the  idea  is  intended 
as  applying  to  money,  or  real,  not  proportional  wages. 
When  it  is  said  that  labor  is  cheap,  the  meaning  is,  that 
labor  of  a  given  effectiveness  can  be  bought  for  a  small 
amount  of  money  or  other  commodities.  That  this  af- 
fects the  ability  of  a  nation  to  sell  certain  classes  of 
goods  to  its  neighbors  is  the  only  idea  intended,  and  no 
one  surely  will  deny  that  it  does  so.  Real  wages  and 
the  margin  of  cultivation  mutually  depend  on  each  other. 
That  real  wages  are  small  is  because  the  margin  is  low, 
and  that  the  margin  is  low  is  because  the  laborer  is  con- 
tent to  increase  the  population  notwithstanding  real 
wages  being  low. 


FREE  TRADE  AND  PROTECTION.  165 

A  lowering  of  the  margin  of  cultivation  has  no  effect 
upon  the  increase  of  agricultural  prices.  That  price  (cost 
of  carriage,  etc.,  apart)  must  be  the  same  the  world  over. 
When  a  nation,  from  any  cause,  lowers  its  margin,  corn 
will  bring  no  higher  price,  because,  if  it  did,  it  would  be 
soon  undersold  bj  foreign  corn,  and  would  remain  in  the 
granaries  of  the  farmer ;  but  the  farmer  can  no  longer 
sell  it  at  the  old  price  and  pay  the  same  money  or  real 
wages.  These  will,  therefore,  very  soon  be  lowered,  but 
this  will  also  entail  a  corresponding  lowering  of  the  wages 
of  artisans,  and,  as  profits  are  not  affected,  of  the  prices 
of  manufactured  goods.  This  will  affect  the  ability  of 
the  nation  to  undersell  its  manufacturing  rivals.  All 
that  those  who  complain  of  "  the  competition  of  pauper 
labor"  should  mean  is,  that  the  lowness  of  their  real 
wages  prevents  us  from  competing  with  foreigners  in 
manufacturing.  They  have  sometimes  complained  in 
terms  that  seemed  to  imply  that  such  competition  tended 
to  lower  the  real  wages  of  our  own  operatives,  and,  so  far 
as  they  have  done  so.  Mill  is  right  in  dismissing  their 
complaint,  and  also  right  in  asserting  that  (except  as  the 
equation  of  international  demand  is  affected)  the  gen- 
eral ability  to  sell  in  foreign  markets  is  not  affected 
by  the  proportion  between  wages  and  profits.  When, 
however,  he  draws  the  implication  from  his  argument 
that  the  ability  to  sell  particular  classes  of  commodities 
is  not  affected,  he  is  as  certainly  wTong,  and,  however 
he  has  understood  his  opponents,  and  however  loosely 
they  have  expressed  themselves,  this  is  all  that  is  really 
necessary  to  the  argument  in  favor  of  protection,  show- 
ing as  it  does  that  if  there  is  any  inherent  benefit  to  a 
nation,  other  things  being  equal,  in  diverting  its  indus- 
try from   agriculture  to  manufactures,  such   advantage 


166  CAPITAL  AND  POPULATION. 

can  not  be  realized  if  an  unrestricted  international  inter- 
change is  allowed. 

I  have  already  proved  that  such  an  advantage  exists, 
but  it  may  not  be  useless  to  again  do  so  by  another  illus- 
tration : 

Let  us  suppose,  then,  two  peoples  of  equal  population, 
say  of  one  million  laborers,  with  an  equal  rate  of  profit, 
say  ten  per  cent ;  the  margin  of  cultivation  in  one  being 
so  much  lower  than  in  the  other  that,  by  an  equal  amount 
of  physical  effort  on  the  poorest  lands  of  each,  only  half 
the  produce  of  the  other  was  obtained  by  the  more  sterile 
nation.  Let  us  further  suppose  that  the  amount  of  gold 
in  each  was  such  that  a  bushel  of  wheat  brought  the  same 
price  in  both  (which  result  would  be  a  necessary  conse-. 
quence  of  their  trading  with  each  other  a  short  time,  what- 
ever the  original  distribution  of  gold).  Now,  let  us  suppose 
these  nations  to  be  completely  isolated  from  each  other 
and  from  all  the  world,  and  the  problem  is,  to  ascertain  how 
the  annual  product  of  one  would  compare  with  that  of  the 
other,  and  then  to  ascertain  how  interchanging  commodi- 
ties will  affect  them.  If  we  take  it  for  granted,  as  would  be 
nearly  the  case,  that  the  consumption  of  food  would  be  the 
same  in  each,  the  more  fertile  would  employ  a  larger  pro- 
portion of  its  labor  as  artisans  than  the  other.  Let  us  sup- 
pose that  two  fifths  of  its  population  raise  its  food,  the 
remaining  three  fifths  will  be  engaged  in  manufactures. 
In  the  more  sterile,  four  fifths  will  then  be  employed  in 
farming  and  only  one  fifth  as  artisans,  leaving  rent  for 
the  moment  out  of  the  account.  The  richer  country 
will  produce  annually  two  fifths  more  than  the  sterile  of 
material  commodities,  less  the  excess  of  the  agricultural 
rent  of  the  sterile  over  that  of  the  fertile  country,  and 
this  excess  (of  two  fifths  less  rent)  will  be  wholly  in  manu- 


FREE  TRADE   AND  PROTECTIOK  167 

factured  commodities.  What  the  excess  of  rent  will  be, 
can  not  be  calculated.  It  might  be  very  little,  or  even  in 
favor  of  the  more  fertile  country,  but  it  could  hardly  be 
80  great  as  to  entirely  absorb  the  difference  in  the  pro- 
ductive capacity  of  the  two  nations.  Let  us  suppose  it 
to  be  one  fifth,  although  one  tenth  would  probably  be  a 
liberal  estimate.  The  fertile  nation  would  then  be  only 
twenty  per  cent  better  off  than  the  sterile  in  its  produc- 
tive efficiency,  and  the  latter  would  employ  three  fifths 
of  its  population  in  raising  food  and  two  fifths  in  manu- 
facturing. 

The  exchangeable  or  gold  value  of  their  produce 
would,  however,  vary  much  more.  Supposing  profits  in 
both  at  ten  per  cent,  and  that,  on  the  average,  manufact- 
ures employed  an  excess  of  plant  over  farming  equal  to 
twice  the  annual  amount  of  manufacturing  wages,  the 
gold  value  of  the  product  of  three  hundred  working  days 
(wages  being  one  dollar  in  the  sterile,  and  two  dollars  in 
the  fertile  land)  would  be  as  follows  : 

IN  THE   FEETTLE   OOUNTET. 

Wages  of  400,000  men  300  days,  at  $2.00,  in 

agriculture $240,000,000 

Wages  of  600,000  men  300  days,  at  $2.50,  in 

manufactures 450,000,000 

(I  here  suppose  the  skilled  labor  of  artisans 
to  be  worth  twenty-five  per  cent  more  than 
unskilled  agricultural  labor.) 

Profits  on  circulating  capital 69,000,000 

Profits  on  fixed  capital 90,000,000 

Profits  on  rentals 6,000,000 

Rent  (assumed) 60,000,000 

$915,000,000 

For  convenience  in  calculating,  I  assume  the  rental  to 
be  paid  in  advance  by  the  farmer. 


168  CAPITAL  AND  POPULATIOK 

IN   THE   STEEILE    COUNTRY. 

TVages  of  600,000  men  300  days,  at  $1.00,  in 

agriculture $180,000,000 

Wages  of  400,000  men  300  days,  at  $1.25,  in 

manufactures 150,000,000 

Profits  on  circulating  capital 33,000,000 

Profits  on  fixed  capital 30,000,000 

Profits  on  rentals 12,000,000 

Eent,  by  supposition  one  fifth  the  value  of 
300,000,000  days'  agricultural  labor  in 
addition  to  the  Cental  of  the  fertile  coun- 
try       120,000,000 


$526,000,000 


This  excess  of  $390,000,000  in  tlie  gold  value  of  its 
products  does  not  express,  however,  the  real  advantage 
in  material  things  that  the  fertile  country  possesses.  The 
gold  value  and  the  real  amount  of  the  agricultural  prod- 
uce is  the  same,  agricultural  profits,  wages,  and  rent  to- 
gether amounting  to  the  same  sum,  $330,000,000.  The 
gold  value  of  manufactured  goods  is,  however,  twice  as 
great  in  the  fertile  as  in  the  sterile  country ;  her  real 
advantage  is,  therefore,  less  than  these  figures  show. 
The  real  amount  is  the  product  of  200,000  laborers 
employed  as  artisans  for  300  days,  together  with  the 
profits  of  the  fixed  and  circulating  capital.  With  profits 
and  wages  as  supposed,  the  value  of  such  product  in  the 
fertile  country  would  be  $195,000,000,  or  $97,500,000 
in  the  sterile. 

"Now  let  us  suppose  these  countries  to  commence  trad- 
ing together.  At  first  the  sterile  nation  would  export 
goods  and  import  gold;  when  that  had  affected  prices 
suflSciently,  it  would  commence  to  import  food  and  raw 
products  also,  and  to  divert  its  labor  from  agriculture  to 


FEEE  TRADE  AND  PROTECTION.  169 

manufactures,  while  industry  in  the  fertile  country  would 
take  the  reverse  direction.  If  population  remained  sta- 
tionary and  there  were  no  cost  of  carriage  to  be  considered, 
the  ultimate  result  would  be  that  the  margin  of  cultiva- 
tion would  be  the  same  in  both  countries,  except  such 
small  difference  as  would  lead  the  sterile  country  to  con- 
tinue importing  food,  which  we  will  disregard.  If  we 
further  suppose  the  gradation  in  the  fertility  of  the  lands 
previously  cultivated  to  be  the  same  in  both,  the  sterile 
country  would  have  previously  cultivated  twice  the  land 
that  the  fertile  did,  less  the  difference  expressed  by  its 
greater  rental,  which  we  liave  assumed  as  half  such  excess. 
The  sterile  country  would  then  attain  the  same  margin 
by  throwing  the  poorest  third  of  her  land  out  of  cultiva- 
tion, if  we  suppose,  as  would  probably  be  the  case,  that, 
on  account  of  the  abundance  of  her  fertile  land,  the  in- 
crease of  agricultural  industry  did  not  lower  the  margin 
in  the  fertile  country. 

The  sterile  land  would  now  employ  two  fifths  of  its 
labor  agriculturally  and  three  fifths  in  manufactures,  and 
the  fertile  only  two  fifths  as  artisans  and  three  fifths  as 
farm-hands ;  its  artisans  being  then  employed  in  the 
coarser  manufactures,  requiring  but  little  capital,  which 
circumstance,  though  greatly  assisting  my  argument,  I 
will  leave  out  of  the  calculation. 

Money,  real  and  proportional  wages,  would  now  be 
the  same  in  both  countries.  Prices  of  both  raw  products 
and  goods  would  also  be  the  same,  except,  of  course, 
to  such  extent  as  would  lead  to  a  continuance  of  com- 
mercial relations,  which  difference  I  disregard  in  the 
calculation  below.  Let  us  compute  the  real,  now  also 
the  exchangeable,  value  of  the  annual  product  of  the 
two  nations : 


170  CAPITAL  AND  POPULATION. 

THE  FERTILE   COUNTET. 

Wages  of  600,000  men  300  days,  at  $1.60,  in 

agriculture $288,000,000 

(The  money  value  of  a  day's  wages  will  be 
such  that  the  joint  product  of  the  two  coun- 
tries will  have  the  same  money  value  as  be- 
fore, as  no  increase  or  decrease  of  gold  has 
occurred.  The  rates  here  supposed  bring 
about  this  result  as  nearly  as  any  that  could 
be  conveniently  used.) 
Wages  of  400,000  men  300  days,  at  $2.00,  in 

manufactures 240,000,000 

Profits  on  circulating  capital 52,800,000 

Profits  on  fixed  capital 48,000,000 

Profits  on  rentals 6,000,000 

Rent  as  before 60,000,000 

$694,800,000 

THE   STEEILE    COTTNTET. 

Wages  of  400,000  men  300  days,  at  $1.60,  in 

agriculture $192,000,000 

Wages  of  600,000  men  300  days,  at  $2.00,  in 

manufactures 360,000,000 

Profits  on  circulating  capital 65,200,000 

Profits  on  fixed  capital 72,000,000 

Profits  on  rentals 6,000,000 

Rent,  now  only 60,000,000 

$745,200,000 

The  total  production  of  the  sterile  country  is  now 
greater  than  that  of  the  fertile  by  a  value  of  $50,400,000, 
which,  divided  by  $2.60  (the  cost  in  profits  and  wages  of 
a  day's  product  of  artisan  labor),  gives  the  material  product 
of  19,384,615  days  of  artisan  labor ;  whereas  the  relative 
advantage  formerly  belonged  to  the  fertile  country  to  the 
extent  of  60,000,000  days  of  such  labor.  The  total  rela- 
tive gain  of  the  manufacturing  country  is  79,384,615  days 


FREE   TRADE   AND  PROTECTION.  171 

of  artisan  labor,  but  tbe  total  gain  to  tliem  both  by  their 
intercourse- can  not  be  more  than  the  gain  in  eflSciency  of 
the  200,000  laborers  transferred  from  manufacturing  to 
agriculture  in  the  fertile  country.  This  gain  is  of  half 
their  labor,  and  amounts  to  the  products  of  30,000,000 
days'  labor  employed  in  agriculture,  which  is  equal  to 
24,000,000  days  of  artisan  labor.  The  manufacturing 
country  has  obtained,  as  the  fruits  of  free  trade,  and 
solely  at  the  expense  of  the  agricultural,  the  products  of 
55,384,615  days  of  artisan  labor,  and  the  whole  gain,  be- 
sides, of  the  increased  efficiency  of  the  united  labor  of 
them  both. 

I  have  supposed,  of  course,  an  extreme  though  per- 
fectly permissible  case.  As  the  effect  of  the  intercourse, 
population  would  advance  so  as  to  keep  the  margin  of 
cultivation  considerably  lower  in  the  sterile  country  than 
in  the  fertile,  and  as  far  as  this  happened  her  relative  and 
absolute  gain  would  be  lessened.  The  rate  of  profit,  the 
comparative  efficiency  of  labor  in  manufacturing,  the 
equation  of  international  demand,  with  its  consequent 
indebtedness  of  the  fertile  to  the  sterile  nation,  would  all 
affect  the  result,  and  none  of  these  causes  can  be  so  ap- 
proximately estimated  as  to  give  any  value  to  computa- 
tions based  upon  them.  I  will  only  say  of  them  that  the 
equation  of  international  demand,  as  we  shall  hereafter 
see,  will  also  tend  to  the  benefit  of  the  manufacturing 
nation,  and  that  any  lowering  of  the  margin  of  cultiva- 
tion in  the  agricultural  land  will  be  an  added  detriment 
to  it  and  to  the  world,  so  that,  in  practice,  whenever  the 
two  margins  became  the  same,  the  loss  of  the  latter  coun- 
try through  free  trade  would  be  much  greater,  and  the 
gain  to  the  world  less,  than  I  have  figured. 

The  results  I  have  obtained  in  my  calculations  are  in- 


172  CAPITAL  AND  POPULATION. 

explicable  if  Mill  is  right  as  to  the  distribution  of  advan- 
tage under  free  trade.  He  certainly  is  right,  however,  if 
his  views  as  to  capital,  here  combated,  are  correct.  In 
Book  III,  chapter  xviii,  section  2,  he  says : 

"  It  is  even  possible  to  conceive  an  extreme  case,  in  which  the 
whole  of  the  advantage  resulting  from  the  interchange  would  be 
reaped  by  one  party,  the  other  country  gaining  nothing  at  all." 

He  is  here  discussing  the  equation  of  international  de- 
mand, and  what  he  says  is  true  as  affecting  that  question, 
but  is  certainly  less  than  true  as  affecting  international 
trade,  as  we  have  seen  in  the  instance  supposed.  He 
.everywhere  assumes,  and  sometimes  distinctly  asserts, 
that  the  effect  of  international  exchange  upon  the  distri- 
bution of  wealth  can  not  exceed  the  Kmits  of  the  in- 
creased product  that  results  from  the  same  cause- 
In  this  variance  of  my  view  from  that  of  Mill  I  find 
that  I,  rather  than  he,  am  sustained  by  the  authority  of 
Eicardo.  The  appeal  to  his  decision  can  not  be  very 
definite,  as  the  point  had  not  then  arisen  in  the  discus- 
sion of  the  subject ;  but,  in  his  whole  chapter  on  foreign 
trade,  Kicardo  scrupulously,  and  with  apparent  care,  dis- 
cusses the  subject  of  international  exchange  in  terms  of 
labor  only,  whereas  Mill  as  carefully  does  so  in  terms  of 
both  labor  and  capital.  Ricardo's  exemplification  of  the 
subject  contains  absolutely  nothing  in  conflict  with  the 
views  here  set  forth,  although  there  is  much  in  these 
views  not  to  be  found  in  his  pages.  He  considers  the 
sole  advantage  of  foreign  trade  to  consist  in  the  exchange 
of  the  products  of  a  smaller  for  those  of  a  larger  amount 
of  labor,  without  any  regard  to  the  profits  of  capital. 
Mill  considers  it  to  consist  in  the  exchange  of  a  smaller 
amount  of  money-wages  and  profits  for  what  would  other- 
wise cost  a  larger  amount  of  money-wages  and  profits ; 


FREE  TEADE  AND  PROTECTION".  1Y3 

while  I  hold  that  the  comparison  must  be  made  between 
the  labor  expended  on  the  products  exchanged  for  the 
imported  commodity,  and  the  labor  that  could  have  pro- 
duced such  commodity  at  home.  My  view,  therefore, 
almost  coincides  with  that  of  Ricardo,  and  the  weight  of 
his  authority  is  decidedly  against  Mill. 

Eicardo  also  distinctly  acknowledged,  although  he 
did  not  pursue  the  subject  to  its  conclusion,  that  the  dis- 
tribution between  the  two  nations  of  their  joint  product 
may  be  to  the  absolute  disadvantage  of  one  of  them,  not- 
withstanding an  increase  of  such  joint  product.  In  chap- 
ter XXV,  on  '^  Colonial  Trade,"  p.  205,  he  says : 

"  That  tlie  loss  sustained  through  a  disadvantageous  distribution 
of  labor  in  two  countries  may  be  beneficial  to  one  of  them,  while  the 
other  is  made  to  sufi'er  more  than  the  loss  actually  belonging  to  such 
a  distribution,  has  been  stated  by  Adam  Smith  himself;  which,  if 
true,  will  at  once  prove  that  a  measure  which  may  be  greatly  hurt- 
ful to  a  colony  may  be  partially  beneficial  to  the  mother-country." 

Here  is  a  most  positive  accordance  with  my  view,  and 
a  disagreement  from  that  of  Mill.  The  wonderful  de- 
ductive power  of  Eicardo's  mind  preserved  him  from 
most  of  Mill's  errors.  Starting  from  capital  as  he  de- 
fined it,  I  find  little  in  his  work  to  object  to,  except  the 
definition  of  capital  itself,  and  the  fact  that  occasionally 
he  has  used  the  term  in  a  broader  signification  than  his 
definition  allows.  It  is  Mill,  and  not  I,  who  differs  from 
him,  because  he  has  applied  Eicardo's  deductions  to  a 
definition  of  capital  not  contemplated  by  him,  and  from 
which  the  deductions  by  no  means  follow,  or  were  in- 
tended by  Eicardo  to  follow. 

While,  therefore,  the  proportional  cost  of  labor  to 
some  extent  determines  the  nature  of  a  nation's  indus- 


174  CAPITAL  AND  POPULATION. 

tries,  the  real  or  money  cost  does  so  to  a  much  greater 
degree ;  and  I  am  entitled  to  affirm  that  a  high  rate  of 
real  or  money  wages  diverts  the  industry  of  a  nation  into 
those  channels  where  it  derives  the  least  benefit  from  the 
use  and  increase  of  its  capital,  and  where  its  labor  is 
more  wastefully,  because  more  unskillfuUy,  applied. 

3.  That  the  efficiency  of  labor  is  miifoTm  in  manu- 
factures^ hut  "variable  in  agriculture  as  affected  by  the 
vicissitudes  of  the  seasons. 

This  difference  between  agriculture  and  manufactures 
will  be  of  importance  later  on,  as  affecting  the  equation 
of  international  demand,  and  is  only  noted  here  to  pre- 
serve the  symmetry  of  the  argument. 


CHAPTEE  XI. 

THE   EQUATION   OF   INTERNATIONAL   DEMAND. 

In  the  discussion  of  this  question,  Mill,  in  Book  III, 
chapter  xviii,  section  4,  says  : 

"If,  therefore,  it  be  asked  what  country  draws  to  itself  the  great- 
est share  of  the  advantage  of  any  trade  it  carries  on,  the  answer 
is,  the  country  for  whose  productions  there  is  in  other  countries  the 
greatest  demand^  and  a  demand  the  most  susceptible  of  increase  from 
additional  cheapness.  In  so  far  as  the  productions  of  any  country 
possess  this  property,  the  country  obtains  all  foreign  commodities  at 
less  cost.  It  gets  its  imports  cheaper,  the  greater  the  intensity  of 
the  demand  in  foreign  countries  for  its  exports.  It  also  gets  its  im- 
ports cheaper,  the  less  the  extent  and  intensity  of  its  own  demand 
for  them.  The  market  is  cheapest  to  those  whose  demand  is  small. 
A  country  which  desires  few  foreign  productions,  and  only  a  limited 
quantity  of  them,  while  its  own  commodities  are  in  great  request  in 
foreign  countries,  will  obtain  its  limited  imports  at  extremely  small 
cost — that  is,  in  exchange  for  the  produce  of  a  very  small  quantity  of 
its  labor  and  capital." 

"With  all  of  which  I,  of  course,  agree.  When,  how- 
ever, in  section  8,  in  further  elucidation  of  the  subject, 
he  says — 

"  The  only  general  law,  then,  which  can  be  laid  down,  is  this. 
The  values  at  which  a  country  exchanges  its  produce  with  foreign 
countries  depend  on  two  things :  First,  on  the  amount  and  extensi- 
bility of  their  demand  for  its  commodities,  compared  with  its  de- 
mand for  theirs ;  and,  secondly,  on  the  capital  which  it  has  to  spare. 


176  CAPITAL  AND  POPULATION-. 

from  the  production  of  domestic  commodities,  for  its  Own  consump- 
tion. The  more  the  foreign  demand  for  its  commodities  exceeds  its 
demand  for  foreign  commodities,  and  the  less  capital  it  can  spare  to 
produce  for  foreign  markets,  compared  with  what  foreigners  spare 
to  produce  for  its  markets,  the  more  favorable  to  it  will  be  the 
terms  of  interchange ;  that  is,  the  more  it  will  obtain  of  foreign 
commodities  in  return  for  a  given  quantity  of  its  own. 

"But  these  two  influencing  circumstances  are  in  reality  reducible 
to  one  ;  for  the  capital  which  a  country  has  to  spare  from  the  pro- 
duction of  domestic  commodities  for  its  own  use  is  in  proportion  to 
its  own  demand  for  foreign  commodities;  whatever  proportion  of  its 
collective  income  it  expends  in  purchases  from  abroad,,  that  same  pro- 
portion of  its  capital  is  left  without  a  home  marTcet  for  its  produc- 
tions. The  new  element,  therefore,  which,  for  the  sake  of  scientific 
correctness,  we  have  introduced  into  the  theory  of  international  val- 
ues, does  not  seem  to  make  any  very  material  difference  in  the  prac- 
tical result " — 

I  do  not  wholly  foUow  him.  He  must  surely  be  wrong 
when  he  affirms,  "  Whatever  proportion  of  its  collective 
income  it  expends  in  purchases  from  abroad,  that  same 
proportion  of  its  capital  is  left  without  a  home  market  for 
its  productions."  This  would  only  be  true  of  a  nation 
whose  exports  were  equally  composed  of  goods  and  raw 
produce,  or  rather  of  one  the  value  of  whose  exports 
was  composed  of  profit  to  the  same  degree  as  its  articles 
for  home  consumption.  But  we  have  seen  that  the  nature 
of  a  nation's  industries  and  exports  depends  mainly  upon 
its  margin  of  cultivation.  An  over-populated  country 
will  export  a  much  larger  proportion  of  articles,  the  price 
of  which  is  due  largely  to  profits,  than  an  under-populated. 
A  mutual  and  equal  decrease  of  demand  between  them 
will,  therefore,  liberate  less  labor  and  more  capital  in  the 
manufacturing  than  in  the  agricultural  country.  This 
will  lower  profits  and  decrease  production  in  the  former, 
and  raise  profits  and  increase  production  in  the  latter, 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.  177 

until  the  ratio  of  capital  to  population  is  readjusted. 
Conversely,  a  mutual  and  equal  increase  of  demand  will 
raise  profits  and  increase  production  in  the  former,  and 
lower  profits  and  decrease  production  in  the  latter.  A 
growing  trade  between  them  will  result  in  a  larger  pro- 
portion of  benefit  to  the  manufacturing  and  smaller  pro- 
portion of  benefit  to  the  agricultural  nation.  To  illus- 
trate, let  us  suppose  that  the  value  of  the  exports  of 
America  to  England,  being  mainly  raw  produce,  is  com- 
posed of  eighty  per  cent  wages  and  twenty  per  cent  prof- 
its, the  value  of  her  articles  of  home  consumption  being 
seventy  per  cent  wages  and  thirty  per  cent  profits,  while 
the  value  of  England's  exports  to  America,  mainly  highly 
manufactured  goods,  is  composed  fifty  per  cent  of  wages 
and  fifty  per  cent  of  profits,  her  articles  of  home  consump- 
tion being  of  sixty-five  per  cent  wages  and  thirty-five  per 
cent  profits.  On  a  decrease  of  trade  between  the  two 
nations,  England  would  be  obliged  to  employ  sixty-five 
laborers  to  utilize  the  same  capital  that  formerly  employed 
only  fifty,  while  America  would  have  to  employ  only  sev- 
enty to  utilize  the  capital  that  formerly  employed  eighty. 
I  think  I  have  conclusively  shown  that  the  effect  of  this 
would  be,  through  the  competition  of  capital  in  England, 
to  raise  proportional  wages  there,  and  to  lower  them  in 
America  through  the  competition  of  laborers.  This  could 
not  but  lead  to  a  decrease  in  the  industrial  activity  of 
England,  and  an  increase  in  that  of  America. 

"  These  two  influencing  circumstances  "  are  not  there- 
fore really  reducible  to  one.  A  mutual  and  equal  de- 
crease of  demand  would,  in  some  degree,  afiect  the  equa- 
tion of  international  demand  between  England  and  Amer- 
ica, as  it  would  certainly  tend  to  lower  the  price  of  Eng- 
lish commodities  and  raise  the  price  of  American — a  re- 


178  CAPITAL  AN"D  POPULATIOISr. 

suit,  as  far  as  it  goes,  beneficial  to  us,  while  an  incri 
in  such  demand  would  have  a  contrary  tendency,  and  be 
in  some  degree  hurtful  to  American  interests.  The  more 
extensive,  therefore,  the  commerce  that  is  carried  on  be- 
tween England  and  America,  the  more  will  the  equation 
of  international  demand  incline  in  favor  of  the  former, 
because,  as  Mill  says : 

"  The  less  capital  it  (a  nation)  can  spare  to  produce  for  foreign 
markets,  compared  with  what  foreigners  spare  to  produce  for  its 
markets,  the  more  favorable  to  it  will  be  the  terms  of  interchange." 

Later  on,  in  Book  Y,  chapter  x,  section  1,  Mill  ac- 
knowledges this  effect,  though  for  somewhat  other  rea- 
sons than  those  here  advanced.  With  those  reasons  I 
agree,  and  quote  the  passage  as  illustrating  another  and 
admitted  advantage  that  may  result  from  protection,  and 
which,  although  not  of  itself  sufficient  to  justify  that  pol- 
icy, augments,  in  no  inconsiderable  degree,  the  sum  of 
the  various  advantages  which  are,  in  most  instances,  its 
complete  justification : 

"Those  who  have  not  well  considered  the  subject  are  apt  to 
suppose  that  our  exporting  an  equivalent  in  our  own  produce,  for 
the  foreign  articles  we  consume,  depends  on  contingencies — on  the 
consent  of  foreign  countries  to  make  some  corresponding  relaxation 
of  their  own  restrictions,  or  on  the  question  whether  those  from 
whom  we  buy  are  induced  by  that  circumstance  to  buy  more  from 
us ;  and  that  if  these  things,  or  things  equivalent  to  them,  do  not 
happen,  the  payment  must  be  made  in  money.  Now,  in  the  first 
place,  there  is  nothing  more  objectionable  in  a  money  payment  than 
in  payment  by  any  other  medium,  if  the  state  of  the  market  makes 
it  the-  most  advantageous  remittance ;  and  the  money  itself  was  first 
acquired,  and  would  again  be  replenished,  by  the  export  of  an 
equivalent  value  of  our  own  products.  But,  in  the  next  place,  a 
very  short  interval  of  paying  in  money  would  so  lower  prices  as 
either  to  stop  a  part  of  the  importation,  or  raise  up  a  foreign  demand 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    179 

for  our  produce  sufficient  to  pay  for  the  imports.  I  grant  that  this 
disturbance  of  the  equation  of  international  demand  would  be  in 
some  degree  to  our  disadvantage,  in  the  purchase  of  other  imported 
articles ;  and  that  a  country  which  prohibits  some  foreign  commodi- 
ties does,  cceteris  paribus,  obtain  those  which  it  does  not  prohibit,  at  a 
less  price  than  it  would  otherwise  have  to  pay.  To  express  the 
same  thing  in  other  words :  a  country  which  destroys  or  prevents 
altogether  certain  branches  of  foreign  trade,  thereby  annihilating  a 
general  gain  to  the  world,  which  would  be  shared  in  some  propor- 
tion between  itself  and  other  countries,  does,  in  some  circumstances, 
draw  to  itself,  at  the  expense  of  foreigners,  a  larger  share  than 
would  else  belong  to  it  of  the  gain  arising  from  that  portion  of  its 
foreign  trade  which  it  suffers  to  subsist.  But  even  this  it  can  only 
be  enabled  to  do,  if  foreigners  do  not  maintain  equivalent  prohibi- 
tions or  restrictions  against  its  commodities." 

Again,  in  Book  III,  chapter  xviii,  section  8,  Mill  goes 
on  to  say : 

"  It  still  appears  that  the  countries  which  carry  on  their  foreign 
trade  on  the  most  advantageous  terms  are  those  whose  commodi- 
ties are  most  in  demand  by  foreign  countries,  and  which  have  them- 
selves the  least  demand  for  foreign  commodities.  From  which, 
among  other  consequences,  it  follows  that  the  richest  countries, 
cceteris  paribus,  gain  the  least  by  a  given  amount  of  foreign  com- 
merce ;  since,  having  a  greater  demand  for  commodities  generally, 
they  are  likely  to  have  a  greater  demand  for  foreign  commodities, 
and  thus  modify  the  terms  of  interchange  to  their  own  disadvantage. 
Their  aggregate  gains  by  foreign  trade,  doubtless,  are  generally 
greater  than  those  of  poorer  countries,  since  they  carry  on  a  greater 
amount  of  such  trade,  and  gain  the  benefit  of  cheapness  on  a  larger 
consumption ;  but  their  gain  is  less  on  each  individual  article  con- 
sumed." 

"We  fail  to  see  that  this  necessarily  follows.  The  pro- 
portion of  a  nation's  income  which  will  be  expended  upon 
imported  commodities  does  not  so  much  depend  upon 
the  gross  amount  of  such  income,  nor  upon  the  average 
income  ^er  capita  of  her  population,  as  upon  the  greater 


180  CAPITAL  AND  POPULATION". 

or  less  variety  of  her  own  products,  which  is  always  less 
in  agricultural  than  in  manufacturing  countries.  If  we 
suppose  three  nations  one  of  whom  was  willing  and  able 
to  import  a  value  of  $100,000,000,  and  the  other  two 
only  $80,000,000  each,  it  is  perfectly  conceivable  that  the 
rich  nation  might  exchange  $50,000,000  with  each,  and 
they  $30,000,000  with  each  other,  and  the  equation  not 
be  at  all  affected  thereby.  If  the  richer  nation  desired 
to  import  $110,000,000,  whether  she  could  do  so,  without 
affecting  the  equation,  would  depend  entirely  upon  the 
willingness  of  the  others  to  transfer  their  demand  from 
each  other  to  her.  If,  indeed,  one  nation  should  demand 
all  the  exportable  produce  that  other  nations  could  spare, 
the  equation  would  be  affected  disastrously  for  her,  but 
this  could  not  occur  simply  from  the  greater  wealth  of 
any  nation,  but  also  from  its  increase  of  territory,  in 
which  case,  owing  to  the  increase  in  the  variety  of  its 
own  industries,  the  proportion  of  its  demand  for  foreign 
products  would  be  correspondingly  lessened. 

But  it  is  not  always  true  that  the  aggregate  demand  of 
rich  countries  (by  which  is  here  meant,  countries  of  large 
capital  in  proportion  to  their  population)  is  greater  than 
that  of  poorer  ones.  The  demand  is  likely  to  be  not  in 
proportion  to  the  capital,  but  to  the  annual  produce,  of 
different  nations.  England  is  far  richer  than  we,  but  her 
annual  produce  jper  capita  is  supposed  to  be  about  the 
same.  As  affecting  our  trade  with  her,  little  or  no  effect 
upon  the  equation  can  be  attributed  to  the  comparative 
wealth  of  the  two  nations. 

The  equation  is,  however,  profoundly  affected  by  the 
proportion  in  which  the  total  income  of  the  two  countries 
is  divided  between  the  wages  and  capitalist  classes.  As 
a  country  engages  in  manufacturing  chiefly  because  its 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    181 

margin  of  cultivation  is  low,  its  real  wages  and  total 
wages-fund  will  be  considerably  less  than  the  real  wages 
and  wages-fund  of  an  agricultural  country.  J^ow,  it  will 
not  be  disputed  that  the  larger  the  income  of  any  indi- 
vidual, the  smaller  the  proportion  of  it  will  be  expended 
by  him  for  food,  and  the  larger  for  manufactured  goods. 
The  average  incomes  of  American  laborers  are  much 
larger  than  the  average  incomes  of  English  laborers. 
Their  demand  will,  therefore,  be  somewhat  greater  for 
manufactured  goods.  The  English  capitalists  enjoy  on 
the  average  a  greater  income  and  a  greater  gross  sum  of 
profits  than  the  American ;  and,  consequently,  a  larger 
proportion  of  their  demand  will  be  for  goods  and  a  smaller 
for  food.  In  each  country  the  relatively  preponderating 
class  will  exert  a  proportionally  larger  demand  for  Eng- 
lish goods  than  they  will  for  American  products.  This 
can  not  but  result  in  the  demand  for  English  products 
being  greater  than  the  demand  for  American,*  and  must 
incline  the  equations  very  considerably  in  England's  fa- 
vor. It  can  be  stated,  as  a  general  law  of  international 
demand,  that  the  demand  of  a  country  with  a  low  margin 
of  cultivation  for  the  products  of  a  country  with  a  high 
margin  will  be  less  than  the  reciprocal  demand  for  its 
goods  by  the  other,  and,  cceteris  paribus,  the  greater  share 
of  the  benefit  of  their  mutual  intercourse  will  accrue  to 
the  more  sterile  country. 

I  would  refer  to  the  following  passage  from  Mill's 

*  Whether  the  greater  demand  for  English  goods  comes  from  America 
or  England  makes  no  difference,  as  the  greater  the  English  demand  for  her 
own  goods  the  less  she  can  spare  of  them  for  export.  It  is  the  total  de- 
mand which  will  sustain  the  prices  of  English  goods  somewhat  above  what 
would  otherwise  be  their  natural  level,  and  correspondingly  depress  the 
prices  of  American  produce,  and  it  is  through  these  prices  that  the  equa- 
tion of  international  demand  would  be  affected  and  expressed. 


182  CAPITAL  AND  POPULATION. 

"  Principles,"  as  explaining  and  elucidating  international 
demand,  Book  III,  chapter  xx,  section  3 : 

"  From  the  preceding  considerations,  it  appears  that  those  are 
greatly  in  error  who  contend  that  the  value  of  money,  in  countries 
where  it  is  an  imported  commodity,  must  be  entirely  regulated  by 
its  value  in  the  countries  which  produce  it,  and  can  not  be  raised 
or  lowered  in  any  permanent  manner  unless  some  change  has  taken 
place  in  the  cost  of  production  at  the  mines.  On  the  contrary,  any 
circumstance  which  disturbs  the  equation  of  international  demand 
with  respect  to  a  particular  country,  not  only  may,  but  must,  affect 
the  value  of  money  in  that  country — its  value  at  the  mines  remain- 
ing the  same.  The  opening  of  a  new  branch  of  export  trade  from 
England ;  an  increase  in  the  foreign  demand  for  English  products, 
either  by  the  natural  course  of  events  or  by  the  abrogation  of  duties ; 
a  check  to  the  demand  in  England  for  foreign  commodities,  by  the 
laying  on  of  import  duties  in  England  or  of  export  duties  elsewhere 
— these,  and  all  other  events  of  similar  tendency,  would  make  the 
imports  of  England  (bullion  and  other  things  taken  together)  no 
longer  an  equivalent  for  the  exports ;  and  the  countries  which  take 
her  exports  would  be  obliged  to  offer  their  commodities,  and  bullion 
among  the  rest,  on  cheaper  terms,  in  order  to  re-establish  the  equa- 
tion of  demand ;  and  thus  England  would  obtain  money  cheaper 
and  would  acquire  a  generally  higher  range  of  prices.  Incidents 
the  reverse  of  these  would  produce  effects  the  reverse — would  re- 
duce prices  ;  or,  in  other  words,  raise  the  value  of  precious  metals. 
It  must  be  observed,  however,  that  money  would  thus  be  raised  in 
value  only  with  respect  to  home  commodities;  in  relation  to  all 
imported  articles  it  would  remain  as  before,  since  their  values  would 
be  affected  in  the  same  way  and  in  the  same  degree  with  its  own. 
A  country  which,  from  any  of  the  causes  mentioned,  gets  money 
cheaper,  obtains  all  its  other  imports  cheaper  likewise." 

I  have  heretofore  been  discussing  the  question  of  free 
trade  or  protection  under  the  supposition  that  the  equa- 
tion of  international  demand  did  not  operate  unfavorably 
to  agricultural  nations ;  but  we  now  see  that  a  further  ad- 
dition to  the  possible  benefits  of  protection,  beyond  those 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    183 

already  enumerated,  is  to  be  found  in  the  fact  that  pro- 
tection tends  to  adjust  that  equation  more  to  the  advan- 
tage of  an  agricultural  country.  Even  if,  under  free 
trade,  such  country  suffered  no  loss  in  the  gross  amount 
of  its  profits,  and  from  its  labor  being  diverted  from 
highly  paid  and  skilled  to  more  poorly  paid  and  unskilled 
industries,  and  from  its  female  labor  being  less  utilized,  it 
could  still  hope  for  little  or  none  of  the  benefit  accruing 
from  the  greater  efficiency  of  its  own  labor,  as  its  just 
share  of  this  benefit  would  be  all  or  nearly  all  transferred, 
by  the  operation  of  the  laws  of  international  demand,  to 
the  manufacturing  nations  with  which  it  traded. 

I  have  thus  far  been  exclusively  considering  the  com- 
mercial intercourse  that  takes  place  between  civilized 
nations,  in  which  the  augmentation  and  application  of 
capital  are  affected  only  by  economic  and  not  by  moral 
causes,  at  least  to  any  appreciable  degree.  It  may  be  well 
in  this  connection  to  consider  the  effects  of  free  trade  be- 
tween two  such  countries  as  England  and  India.  The 
margin  of  cultivation  in  India  is  much  lower  than  in 
England,  and  yet  she  remains  an  agricultural  land,  and 
depends  upon  the  latter  very  largely  for  her  manufactured 
goods.  Ostensible  profits  are  very  high.  This  is  largely 
owing  to  the  insecurity  of  capital,  but,  after  every  deduc- 
tion is  made  on  that  account,  the  real  rate  of  profit  is  un- 
doubtedly higher  than  in  England.  Under  a  natural  and 
civilized  state  of  affairs  she  would  manufacture  for  Eng- 
land, and  not  England  for  her,  despite  this  last  circum- 
stance. Why  does  she  not  do  so  ?  There  are  no  eco- 
nomic reasons,  except  her  disadvantage  in  the  cost  of  coal, 
which  is  very  far  from  balancing  her  advantage  in  the 
low  money  and  real  cost  of  her  labor,  and  that  there,  as 
in  most  uncivilized  countries,  population  presses  upon 


184  CAPITAL  AND  POPULATION. 

capital  instead  of  capital  upon  population.  Her  seasons 
of  industrial  depression  are  never  the  result  of  a  plethora 
of  dead  stock,  but  of  an  actual  insufficiency  of  all  her 
stock  to  support  her  laborers  from  harvest  to  harvest ;  and 
although  I  have  not  the  statistics  at  hand  to  prove  the  as- 
sertion, and  doubt  whether  such  statistics  exist,  I  venture 
to  assert  that  in  such  periods  her  rate  of  profit,  if  it  could 
be  ascertained,  would  be  found  to  advance  instead  of  to 
recede,  as  it  does  in  civilized  nations,  in  their  periods  of 
depression.  That  population  presses  upon  capital  is  the 
effect  wholly  of  moral  causes,  but  it  renders  India  phys- 
ically incapable  of  accumulating  the  capital  required  for 
manufacturing.  If  the  security  afforded  by  English  rule 
leads  gradually  to  an  increase  in  the  desire  to  accumulate, 
and  her  capital  once  gains  a  foothold  in  manufacturing, 
it  will  not  be  long  before  England  will  be  forced  to  shut 
out  her  competition  by  protective  duties,  as,  I  understand, 
she  practically  does  now  by  discouraging,  by  every  means 
in  her  power,  any  diversion  of  Indian  industry  from  agri- 
culture to  manufactures. 

While  the  rate  of  profit  in  India  is  higher  than  in 
England,  the  share  of  the  gross  product  that  accnies  to 
capital  is  less,  because  her  fixed  capital  and  dead  stock  are 
many  times  less  than  her  circulating,  while  in  England 
the  fixed  is  several  times  the  amount  of  circulating  wealth. 
On  account  of  the.  scarcity  of  the  precious  metals  there, 
exchange  between  the  two  countries  should  be  in  favor 
of  India,  and  for  a  long  time  was  so,  as  was  shown  by 
her  continued  import  of  silver.  Lately,  however,  the 
exchange  has  turned  in  England's  favor,  and  it  has  done 
so  on  account  of  the  extent  of  the  remittances  from  India 
to  England  as  interest  on  English  capital  there  invested. 
Whatever  benefit  India  derives  from  such  investments  is 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    185 

subject  to  the  serious  drawback  of  the  disturbance  of  the 
exchange  and  equation  to  her  injury.  If,  therefore,  Eng- 
lish capital  should  be  further  invested  in  manufacturing 
in  India,  the  result  would  be  a  further  disturbance  of  the 
equation  that  would  leave  to  India  little  or  none  of  the 
benefit  of  having  factories  established  in  her  midst.  JS'ow 
there  is  a  positive  loss  to  the  world  in  England's  manu- 
facturing for  India.  There  would  be  a  great  gain  in  in- 
dustrial efiiciencj  if  India  should  divert  some  of  her 
labor  from  agriculture  to  manufactures,  and  England  or 
some  other  country  transform  an  equivalent  number  of 
her  artisans  into  agriculturists.  Mill  must,  therefore,  be 
wrong  when  he  asserts  that  the  equation  of  international 
demand  can  only  vary  within  the  limits  of  the  advantage 
to  the  world  afforded  by  free  trade,  as  the  equation  is 
here  in  favor  of  England,  notwithstanding  a  loss  to  the 
world  of  productive  efficiency.  Any  tribute  paid  by  one 
country  to  another,  whether  in  the  shape  of  a  tax  or  of 
the  interest  and  profit  of  invested  capital,  affects  the 
equation  to  the  injury  of  the  paying  nation,  independent 
of  any  other  cause  or  limit. 

The  advantage  which  England  derives  from  her  con- 
quest of  India  is  not  only  the  profit  of  the  ensuing  trade, 
but  also  the  opportunity  afforded  her  for  investment 
there,  which,  by  draining  off  English  capital,  has  not  only 
added  to  her  income  the  interest  and  profits  of  such  cap- 
ital, which  otherwise  she  could  not  have  accumulated, 
but  has  also,  by  sustaining  the  rate  of  profit  at  home, 
enabled  her  to  increase  her  industrial  activity  and  the 
amount  of  her  annual  product.  She  has  supplanted  w^ith 
her  own  capital  the  capital  which  India  would  naturally 
have  accumulated  if  she  had  enjoyed  a  like  security  under 
her  own  rulers,  and,  in  so  far  as  she  has  done  so,  she  has 


186  CAPITAL  AND  POPULATION. 

absorbed  at  the  expense  of  India  the  benefits  of  the  secu- 
rity she  has  conferred  upon  her. 

As  long  as  the  equation  of  international  demand  be- 
tween the  two  countries  remains  as  it  is,  the  value  of  the 
home  commodities  of  India  can  not  advance  and  may 
recede,  and  the  value  of  her  imported  commodities  can 
not  recede  and  may  advance.  But  the  implication  in 
what  I  have  heretofore  said,  that  the  equation  is  equalized 
when  gold  or  silver  ceases  to  pass  between  two  countries, 
is  untrue.  The  flow  of  specie  or  bullion  stops  when  any 
equilibrium  of  demand  is  reached,  however  disadvanta- 
geous such  equilibrium  may  be  to  one  of  the  countries. 
The  equation  is  only  really  equal  when  there  is  an  equal 
division  of  the  benefits  of  the  international  exchange. 
England  at  present  derives  in  her  commerce  with  India 
all  or  nearly  all  of  this  benefit ;  indeed,  the  assertion  may 
be  hazarded  that  she  enjoys  more  than  all,  and  yet  the 
equation  has  reached  an  equilibrium  or  rather  yet  inclines 
to  the  favor  of  England — whereas  the  bulk  of  the  benefit 
would  naturally  go  to  India,  until  the  consequent  influx 
of  specie  had  raised  the  prices  of  her  raw  produce  nearly 
to  the  same  level  as  prices  of  raw  produce  in  England. 
If  India  should  protect  her  own  (not  borrowed)  capital, 
invested  in  factories,  this  state  of  affairs  would  quickly 
cease.  Her  demand  on  England  would  be  lessened,  and 
the  equation  readjusted  in  her  favor,  and  it  would  not  at- 
tain an  equilibrium  until  she  had  received  her  proper  share 
of  the  metallic  currency  of  the  world.  In  her  case  the 
benefits  of  a  protective  policy  would  not  be  liable  to  any 
offset  on  account  of  a  loss  in  the  efiaciency  of  her  labor, 
as  it  would  result  in  a  positive  gain  in  this  respect.  But 
when,  as  the  result  of  protection,  her  manufacturers  were 
once  firmly  established,  her  interests  would  be  advanced 


THE  EQUATION  OF  INTERNATIOlSrAL  DEMAND.    187 

by  the  general  adoption  of  free  trade,  as  she  would  then 
be  able  to  undersell  in  manufactures  most  of  the  nations 
of  the  earth,  and  appropriate  to  herself  those  indus- 
tries that  allow  the  utilizations  of  the  largest  capitals 
and  the  employment  of  her  labor  in  the  better  paid 
avocations,  and  which  employ  female  labor  to  the  greatest 
degree. 

There  is  little  danger  to  European  nations  of  India 
pursuing  any  such  course.  England  will  not  allow  her 
to  do  so,  as  long  as  she  is  able  to  control  her  action,  and 
the  anarchy  that  would  follow  a  release  from  English 
rule  would  yet  more  effectually  prevent  it.  But,  while 
India  is  helpless,  China  and  Japan  are  not.  They  have 
already  entered  upon  an  industrial  competition  with 
Europeans,  and  have  driven  them  from  every  field 
upon  which  they  have  entered  as  competitors.  China  is 
now  doing  all  her  own  sea-board  carrying-trade,  and  has 
even  established  a  steamship  line  to  our  shores.  She 
and  Japan  also  will  soon  be  erecting  cotton,  silk,  and 
woolen  mills,  and,  when  they  do,  competition  with  them 
by  English  and  American  labor  will  be  utterly  futile 
under  free  trade.  They  will  as  certainly  monopolize  our 
markets  as  their  own.  Their  margin  of  cultivation  is 
too  low  for  us  to  contend  with  them  in  the  most  desir- 
able departments  of  human  endeavor.  When  they  have 
adapted  their  capital  and  population  to  the  new  econom- 
ic conditions,  they  will  obtain  for  themselves  not  only  all 
the  benefit  of  the  increased  efficiency  of  labor,  but  much 
more,  at  our  expense;  until,  finally,  our  more  rapid  in- 
crease of  population  shall  have  reduced  our  margin  to 
theirs,  and  reduced  the  moral  and  physical  status  of  our 
laboring  population  to  that  of  their  coolies.  The  re- 
morseless competition  of  free  trade  will  bestow  more 


188  CAPITAL  AND  POPULATION". 

than  all  the  advantages  of  international  intercourse  upon 
the  lowest  and  least  developed  races  of  mankind. 

Returning  again  to  the  consideration  of  the  exchange 
between  civilized  nations,  I  would  call  attention  to  an- 
other circumstance  affecting  the  equation  between  manu- 
facturing and  agricultural  nations,  viz.,  the  third  inher- 
ent difference  I  have  noted  in  the  last  chapter  between 
the  efficiency  of  the  two  kinds  of  labor.     I  then  said  : 

"<?.  That  the  efficiency  of  labor  is  uniform  in  manufactures^  hut 
variable  in  agriculture^  as  affected  by  the  vicissitudes  of  the  seasons^ 

It  is  a  fully  conceded  fact  that  the  adjustment  of  the 
equation  of  demand  and  supply  acts  more  violently  on 
the  prices  of  food  and  raw  products  than  on  the  prices  of 
manufactured  goods.  E'ot  only  are  they  more  perishable, 
and  not  so  capable  of  being  held  for  a  better  market,  but 
the  demand  neither  increases  nor  decreases  in  proportion 
to  their  cheapness  and  dearness.  That  this  affects  the 
equilibrium  of  the  equation  to  the  advantage  of  manu- 
facturing countries,  Mill  himself  allows  in  the  quotation 
I  have  made  from  him  at  the  beginning  of  this  chapter ;  * 
and  how  important  this  concession  is,  can  not  but  strike 
any  one  familiar  with  his  illustration  of  the  adjustment 
of  the  equation  in  the  supposed  trade  between  England 
and  Germany,  in  cloth  and  linen.  In  this  illustration  he 
shows  how  the  whole  benefit  may  accrue  to  the  nation 
whose  demand  for  the  products  of  the  other  increases 
least  as  the  effects  of  cheapness,  and  certainly  the  demand 

*  Book  III,  chapter  xviii,  section  4 :  "  If,  therefore,  it  be  asked  what 
country  draws  to  itself  the  greatest  share  of  the  advantage  of  any  trade  it 
carries  on,  the  answer  is,  the  country  for  whose  productions  there  is  in 
other  countries  the  greatest  demand,  and  a  demand  the  most  susceptible  of 
increase  from  additional  cheapness." 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    189 

of  a  manufacturing  nation  for  agricultural  produce  ful- 
fills this  condition. 

But  the  eflSciencY  of  agricultural  labor  being  so  large- 
ly determined  by  the  vicissitudes  of  the  seasons,  produces 
another  effect  in  addition  to  this.  A  high  price  of  man- 
ufactured goods  immediately  leads  to  and  is  accompa- 
nied by  a  great  increase  of  production,  and  such  high 
price  is  realized  on  a  greater  product,  but  a  high  price 
of  raw  products  is  caused  and  accompanied  by  a  small 
amount  of  production,  and  is  only  realized  on  a  relatively 
lesser  product.  This  effect,  to  be  sure,  is  partly  compen- 
sated by  the  high  price  of  raw  products  being  longer 
sustained  than  the  high  price  of  goods,  because  the  supply 
which  will  eventually  lower  the  price  can  not  so  soon 
be  obtained.  It  is  not  wholly  so  compensated,  because 
the  supply  of  goods  comes  gradually,  and,  on  account  of 
the  greater  employment  of  labor  it  calls  for,  unproductive 
consumption  is  increased,  and  any  increase  of  unproduc- 
tive consumption  tends  to  longer  sustain  prices  and  prof- 
its. The  increase  of  the  supply  of~  raw  produce  and  food 
comes  suddenly.  It  is  usually  affected  at  once,  as  soon 
as  a  new  harvest  is  gathered ;  but,  unlike  a  scarcity  of 
goods,  a  scarcity  of  raw  produce  and  food  does  not  lead 
to  any  increase  in  the  employment  of  labor,  but  rather 
to  a  decrease,  unless,  indeed,  it  is  continued  through  sev- 
eral seasons,  and  then  the  effectual  demand  of  laborers  is 
greatly  lessened,  even  though  more  are  employed,  on 
account  of  the  consequent  fall  in  their  real  wages.  The 
scarcity  price  is  not,  therefore,  at  all  sustained  by  an  in- 
crease of  unproductive  consumption,  and  as  the  profits 
of  different  industries  in  different  nations  do  not  so 
strongly  tend  to  equality  as  do  the  profits  of  different  in- 
dustries within  a  nation,  it  follows  that  fluctuations  in 


190  CAPITAL  AND  POPULATION. 

value  will  tend,  on  the  whole,  to  benefit  manufacturing 
rather  than  agricultural  profits  and  prices. 

The  effect  upon  the  equation  of  international  demand 
of  the  inherent  differences  between  agriculture  and  man- 
ufactures is,  as  far  as  I  am  aware,  a  result  that  has  hardly 
been  noticed,  much  less  discussed,  by  economists.  Mill 
does  barely  touch  upon  the  subject  in  discussing  the  cost 
of  bullion  in  Book  III,  chapter  xix,  section  2,  where  he 
says  : 

"  Countries  whose  exportable  produce  consists  of  the  finer  man- 
ufactures,  obtain  bullion,  as  well  as  all  other  foreign  articles,  cwteris 
paribus,  at  less  expense  than  countries  which  export  nothing  but 
bulky  raw  produce." 

But  neither  here  nor  elsewhere  has  he  given  to  the  sub- 
ject much  consideration. 

I  am  by  no  means  confident  that  I  have  enumerated 
all  of  the  causes  which  affect  the  equation  to  the  detri- 
ment of  an  agricultural  people ;  much,  doubtless,  that  I 
have  failed  to  observe  might  be  elucidated  by  further 
discussion ;  but  I  have  shown  that  the  equilibrium  of  the 
equation  wiU  certainly  be  reached  at  a  point  that  will 
yield  the  largest  share  of  benefit  to  manufacturing  na- 
tions. What  are  the  limits  within  which  the  equation 
must  somewhere  settle  ?  Mill  asserts  that  such  limits  are 
supplied  by  the  increased  efficiency  of  labor  and  capital 
due  to  international  trade — ^Ricardo,  to  the  increased 
efficiency  of  labor  alone.  The  gain  to  the  world  is  surely 
no  more  than  the  increase  in  the  efficiency  of  labor.  In- 
deed, I  utterly  fail  to  comprehend  the  expression,  "in- 
creased efficiency  of  capital "  as  relating  to  the  nationality 
of  capital.  It  can  not  refer  to  the  rate  of  profit ;  that  has 
to  do  with  the  division  of  the  product,  not  its  amount. 
The  same  material  amount  (not  value)  of  fixed  capital 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    191 

(and  it  is  fixed  capital  which  mainly  concerns  us  here) 
will  employ  the  same  amount  of  labor,  of  equal  skill  and 
efficiency,  in  one  country  as  it  will  in  another.  It  is  in- 
deed true  that  a  country  in  which  the  value  of  such  capi- 
tal is  the  least  can  produce  manufactured  goods  at  a  cor- 
respondingly smaller  money  cost,  but  that  does  not  affect 
the  totality  of  the  world's  products,  but  only  their  divis- 
ion. All  variations  in  "the  efficiency  of  capital"  are 
really  variations  in  the  efficiency  of  labor.  Mill  is  more 
accurate  in  his  statement  than  Hicardo,  but  neither  of 
them  is  right.  The  limits  of  the  fluctuations  of  the 
equation  of  international  exchange  are  the  prices  at 
which  the  articles  under  consideration  can  be  produced 
in  the  exporting  and  in  the  importing  country.  As  far 
as  such  prices  depend  upon  economic  causes,  such  eco- 
nomic causes  do  not  include  the  "  efficiency  of  capital," 
but  are  mainly  the  respective  margins  of  cultivation,  and 
in  some  slight  degree  the  rate  of  proportional  wages ;  but 
sometimes,  as  in  the  case  of  England  and  India,  moral 
causes  practically  remove  all  limits  by  preventing  the 
accumulation  of  the  capital  necessary  to  the  most  advan- 
tageous employment  of  labor.  Mill  and  Ricardo  them- 
selves affirm  that  the  limits  I  have  claimed  are  the  true 
ones,  and  only  assert  the  gain  in  efficiency  to  be  also  the 
limit,  because  they  consider  the  two  to  be  identical.  I 
have  already  shown  the  absurd  conclusions  to  which  the 
supposition  of  their  identity  leads.* 

Now,  the  equation  of  international  demand  can  not 
cause  imported  food  and  raw  products  (cost  of  carriage, 
etc.,  apart)  to  sell  at  a  less  price  than  the  food  and  raw 
produce  raised  at  home,  unless  such  food  and  raw  prod- 
uce are  of  a  nature  utterly  unfitted  for  the  national  soil 

*  See  chapter  v,  on  "  Free  Trade  and  Protection." 
9 


192  CAPITAL  AND  POPULATION. 

and  climate,  and  are  not  raised  at  all  by  the  importing 
nation.  The  importing  nation,  nevertheless,  obtains  an 
advantage  by  such  importations,  which  it  expends  in  rais- 
ing its  margin  or  increasing  its  population,  but  such  ad- 
vantage is  not  expressed  at  all  by  a  difference  of  price  as 
affected  by  the  equation  we  are  considering.  Trade  with 
an  agricultural  nation  will,  of  course,  lower  the  price  of 
food  and  raw  prodiicts,  but  it  will  do  so  to  exactly  the 
same  extent,  whether  the  equation  be  in  favor  of  or 
against  the  nation  that  imports  them.  How  the  equation 
stands  will  show  itself  entirely  in  the  price  which  such  na- 
tion obtains  from  the  agricultural  nations  with  which  she 
trades  for  the  manufactures  she  exports,  and  that  price 
will  vary  between  that  at  which  she  could  afford  to  sell 
the  goods  immediately  after  they  were  produced  and  the 
price  at  which  the  country  to  which  she  exports  her 
goods  could  produce  them  at  home.  Now,  if  her  margin 
has  been  raised  by  the  trade,  she  can  not  afford  to  sell 
her  goods  at  so  low  a  price  as  before ;  and  if  her  margin 
should  be  raised  to  nearly  the  same  point  as  that  of  the 
agricultural  country,  she  could  afford  to  sell  her  goods 
at  very  little  below  the  cost  at  which  the  agricultural 
country  could  produce  them  herself.  As  her  margin 
approaches  that  of  the  other,  the  limits  narrow  within 
which  the  equation  can  find  an  equilibrium,  and,  when 
the  margins  became  the  same,  trade  would  cease  between 
the  two  nations,  except  in  those  articles  in  which  one  or 
the  other  of  them  possessed  a  natural  advantage  of  soil  or 
climate,  or  an  acquired  advantage  of  skill.  Each  nation 
would  produce  for  herself  both  the  raw  produce  and  the 
manufactured  goods,  in  the  production  of  which  she  la- 
bored under  no  real  disadvantage.  Such  a  result  could 
only  occur  as  a  consequent  of  a  comparative  depopulation 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    ]93 

of  the  manufacturing  country.  Although  such  depopula- 
tion would  result  in  a  diminution  of  the  gross  amount  of 
its  annual  produce,  the  product  jper  cwpita  might  or  might 
not  be  increased.  During  all  this  process  the  equilibrium 
of  the  equation  might  remain  steady,  as  it  is  supposable, 
for  instance,  that  the  manufacturing  country  might  con- 
tinue all  the  time  to  sell  its  exports  at  the  lowest  price  at 
which  it  could  produce  them,  and,  though  the  price  of 
such  goods  would  constantly  advance,  the  equilibrium 
of  the  equation  would  not  be  thereby  disturbed.  The 
equation  itself  would  become  more  and  more  beneficial 
to  the  agricultural  country,  but  it  could  never  attain  more 
than  its  just  share  of  the  benefit,  and  that  at  the  expense 
of  the  lowering  of  its  margin. 

But  how  can  it  be  determined  that  the  prices  at  which 
goods  are  interchanged  between  nations  are  such  that 
neither  suffers  from  its  demand  for  the  other's  goods  be- 
ing greater  than  the  demand  of  the  other  for  its  goods  ? 
Such  a  state  of  affairs  exists  when  each  nation  pays  for 
its  imports  the  price  at  which  the  other  can  afford  to  sell 
them  to  it,  with  the  ordinary  profit,  immediately  after,  or 
at  a  corresponding  and  equal  distance  of  time  from,  their 
production.  If  either  nation  pays  the  other  a  greater 
price  than  this,  the  equation  is  against  it  to  exactly  that 
extent. 

To  make  this  point  plain,  let  us  suppose  the-  equation 
to  be  against  the  agricultural  country.  This  would  enable 
the  manufacturing  country  to  obtain  more  for  her  exports 
than  the  price  at  which  she  could  afford  to  sell  them.  It 
would  increase  her  manufacturing  but  not  her  agricult- 
ural rate  of  profit.  This  would  result  in  a  transfer  of 
part  of  her  labor  from  agriculture  to  manufactures.  If 
this  raised  her  margin,  the  price  at  which  she  could  pro- 


194:  CAPITAL  AND  POPULATION. 

duce  manufactured  goods  would  finally  be  as  great  as  that 
she  obtained  for  them,  and  the  advantage  gained  would 
no  longer  be  expressed  in  the  equation,  but  in  her  margin 
of  cultivation.  If,  however,  her  population  increased  to 
such  extent  as  to  allow  of  no  rise,  or  only  a  partial  rise,  in 
her  margin,  it  would  appear  that  her  rate  of  manufactur- 
ing profit  would  be  permanently  greater  than  her  rate  of 
agricultural  profit — a  manifest  absurdity.  The  two  rates 
can  not,  of  course,  vary  except  for  a  short  time.  But  the 
price  at  which  commodities  sell  is  not  wholly  composed 
of  wages  and  the  profits  of  fixed  capital  and  active  stock. 
The  profit  of  dead  stock  is  as  truly  a  component  of  price 
as  any  of  the  others.  The  element  of  time  that  will  prob- 
ably elapse  between  the  production  and  the  sale  of  goods 
is  always  considered  by  the  producer  as  an  element  of 
cost.  The  higher  the  price  at  which  he  can  sell  his  com- 
modity, other  things  being  equal,  the  longer  he  will  be 
content  to  wait  before  selling  it.  When,  therefore,  the 
equation  of  international  demand  is  permanently  in  favor 
of  a  manufacturing  nation,  the  rate  of  manufacturing  prof- 
its will,  in  a  short  time,  be  no  higher  than  before,  but 
the  amount  of  dead  stock  which  such  nation  can  accumu- 
late without  depressing  its  industry  will  be  greatly  in- 
creased. The  benefit  from  the  equation  being  in  its  favor, 
will  express  itself,  not  in  the  rate  but  in  the  aggregate  of 
manufacturing  profits. 

I  regard  this  result  of  the  equation  of  international 
demand  as  a  very  important  principle  of  the  science,  and 
for  many  reasons : 

1.  It  affords  a  striking  verification  of  the  fact  herein 
claimed,  that  the  whole  tendency  of  the  equation  is  to  the 
benefit  of  manufacturing  nations,  as  it  can  not  be  disputed 
that  they  are  the  ones  who  actually  do  possess  the  largest 


THE  EQUATION  OF  mTERNATIONAL  DEMAND.    195 

proportion  of  dead  stock,  and  even  if  the  reasons  for  such 
tendency  I  have  advanced  are  not  valid,  it  rests  with  my 
opponents  to  find  reasons  that  are,  as  the  result  certainly 
occurs. 

2.  It  points  to  a  deduction  that  must  be  made  from 
the  benefit  accruing  under  free  trade  to  the  productive 
efficiency  of  the  world — dead  stock  of  itself  is  of  no  ad- 
vantage. Any  unnecessary  increase  in  its  permanent 
amount  is  just  so  much  subtracted  from  the  sum  of  en- 
joyed products,  and  is  as  much  a  loss  to  the  world  as  if  it 
had  been  consumed  by  fire.  The  loss,  indeed,  is  not  very 
great,  but  it  is  a  real  one.  But  the  effect  of  permanent 
increase  of  dead  stock  is  to  permanently  lower  real, 
though  not  proportional  wages,  and  it  benefits  capitalists 
at  the  expense  of  the  laborers,  a  very  undesirable  result. 

3.  It  affords  an  economic  explanation  of  the  fact  that 
manufacturing  are  exclusively  the  lending  nations  of  the 
world.  That  they  are  so  has  hitherto  been  attributed  to 
moral  causes,  and  the  benefit  derived  has  been  regarded 
as  the  well-merited  reward  of  superior  thrift,  abstinence, 
and  industry,  whereas  it  now  appears  to  be  a  due  effect  of 
the  laws  of  international  exchange,  and  a  natural  and  in- 
evitable result  of  the  character  of  the  national  occupations 
rather  than  of  the  industry  and  thriftiness  with  which 
such  occupations  are  pursued.  The  possession  of  this 
large  amount  of  dead  stock  affords  at  all  times  to  manu- 
facturing communities  an  available  fund  for  foreign  in- 
vestment. It  makes  England  the  store-house  and  com- 
mercial center  of  the  world,  and  London  the  capital  in 
which  nearly  all  large  loans  are  raised.  Whether  or  no  a 
proposed  investment,  promising  a  profit,  shall  be  made, 
depends  almost  wholly  on  the  amount  of  idle  funds  be- 
longing to  those  to  whom  the  investment  is  proposed. 


196  CAPITAL  AND  POPULATION. 

The  known  fact  that  such  funds  exist  is  sure  to  afford  to 
their  possessors  the  choice  of  all  existing  opportunities 
for  investment.  They  are  thus  enabled  not  only  to  select 
the  most  promising  of  such  opportunities,  but  are  enabled 
to  very  rapidly  convert  their  dead  stock  into  active  capi- 
tal, and  thus  prevent  it  from  lowering  prices  and  the 
rate  of  profit.  Accumulation  can  go  on  in  such  nations 
more  rapidly  and  for  a  longer  time  without  depressing 
industrial  activity.  Any  race  of  men  will  accumulate 
more  in  such  circumstances  than  they  would  or  could  in 
an  agricultural  status,  wh*ere  comparatively  small  accu- 
mulations so  depress  the  rate  of  profit  that  the  fund  from 
which  accumulations  are  made  is  immediately  destroyed.* 

*  This  brings  us  to  the  last  of  the  counter-forces  which  check  the  down- 
ward tendency  of  profit  in  a  country  whose  capital  increases  faster  than 
that  of  its  neighbors,  and  whose  profits  are  therefore  nearer  to  the  mini- 
mum. This  is  the  perpetual  overflow  of  capital  into  colonies  of  foreign 
countries,  to  seek  higher  profits  than  can  be  obtained  at  home.  I  believe 
this  to  have  been  for  many  years  one  of  the  principal  causes  by  which  the 
decline  of  profits  in  England  has  been  arrested.  It  has  a  twofold  opera- 
tion :  In  the  first  place,  it  does  what  a  fire,  or  an  inundation,  or  a  commer- 
cial crisis  would  have  done ;  it  carries  off  a  part  of  the  increase  of  capital 
from  which  the  reduction  of  profits  proceeds.  Secondly,  the  capital  so  car- 
ried off  is  not  lost,  but  is  chiefly  employed  either  in  founding  colonies, 
which  become  large  exporters  of  cheap  agricultural  produce,  or  in  extend- 
ing and  perhaps  improving  the  agriculture  of  older  communities.  It  is  to 
the  emigration  of  English  capital  that  we  have  chiefly  to  look  for  keeping 
up  a  supply  of  cheap  food  and  cheap  materials  of  clothing,  proportional  to 
the  increase  of  our  population  ;  thus  enabling  an  increasing  capital  to  find 
employment  in  the  country,  without  reduction  of  profit  in  producing  manu- 
factured articles  with  which  to  pay  for  this  supply  of  raw  produce.  Thus, 
the  exportation  of  capital  is  an  agent  of  great  efficiency  in  extending  the 
field  of  employment  for  that  which  remains ;  and  it  may  be  said  truly  that, 
up  to  a  certain  point,  the  more  capital  we  send  away,  the  more  we  shall  pos- 
sess and  be  able  to  retain  at  home. 

In  countries  which  are  further  advanced  in  industry  and  population,  and 
have  therefore  a  lower  rate  of  profit  than  others,  there  is  always,  long  be- 


THE  EQUATION  OF  IFTEENATIONAL  DEMAND.    197 

Not  only  are  manufacturing  nations,  as  a  result  of  the 
character  of  their  industry,  afforded  opportunities  for  the 
accumulation  of  capital  far  beyond  those  of  their  agricult- 
ural neighbors,  but  they  are  enabled  to  usurp  for  them- 
selves, by  means  of  foreign  investment,  the  few  oppor- 
tunities which  are  afforded  to  an  agricultural  people  by 
the  nature  of  their  occupation. 

They  are  enabled  to  do  this  by  the  large  amount  of 
funds,  available  for  such  investment,  which  are  actually 
forced  into  their  possession  by  the  tendency  of  the  inter- 
national equation  in  their  favor,  which  tendency  inevita- 
bly increases  their  dead  stock  by  necessarily  increasing 
the  gross  amount  of  their  manufacturing  profits  in  pro- 
portion to  their  agricultural  profits.  As  the  rate  of  the 
one  can  not  but  for  a  very  short  time  exceed  that  of  the 
other,  the  two  rates  can  only  be  brought  together  by  an 
increase  in  the  amount  of  capital  on  which  manufacturing 
profits  are  paid.  Under  such  circumstances  any  and 
every  people  would  accumulate,  and  it  is  absurd  to  praise 
them  for  their  thrift  and  abstinence  in  so  doing. 

fore  the  actual  minimum  is  reached,  a  practical  minimum,  viz.,  when  profits 
have  fallen  so  much  below  what  they  are  elsewhere,  that,  were  they  to  fall 
lower,  all  further  accumulations  would  go  abroad.  In  the  present  state  of 
the  industry  of  the  world,  when  there  is  occasion,  in  any  rich  and  improv- 
ing country,  to  take  the  minimum  of  profits  at  all  into  consideration  for 
practical  purposes,  it  is  only  this  practical  minimum  that  needs  be  consid- 
ered. As  long  as  there  are  old  countries  where  capital  increases  very  rap- 
idly, and  new  countries  where  profit  is  still  high,  profits  in  the  old  countries 
will  not  sink  to  the  rate  which  would  put  a  stop  to  accumulation.  The  fall 
is  stopped  at  the  point  which  sends  capital  abroad.  It  is  only,  however,  by 
improvements  in  production,  and  even  in  the  production  of  things  consumed 
by  laborers,  that  the  capital  of  a  country  like  England  is  prevented  from 
speedily  reaching  that  degree  of  lowness  of  profit  which  would  cause  all 
further  savings  to  be  sent  to  find  employment  in  the  colonies,  or  in  foreign 
countries. 


198  CAPITAL  AND  POPULATION. 

Within  the  nation  itself,  the  effect  of  this  noraially 
larger  amount  of  dead  stock  is  to  lower  real  wages  with- 
out any  disturbance  of  proportional.  So  far  as  the  la- 
borers consume  manufactured  goods,  they  pay  for  them 
more  than  they  would  if  the  normal  amount  of  dead 
stock  were  less.  Goods  held  for  a  year  before  they  reach 
the  consumer  will,  in  the  long  run  and  on  the  average, 
cost  him  about  ten  per  cent  more  than  they  otherwise 
would,  and  whatever  increment  of  cost  is  due  to  this 
cause  operates  as  a  transfer  of  value,  without  equivalent, 
from  the  consumers  to  the  capitalists,  and  in  so  far  as  such 
consumers  are  laborers  they  suffer  a  loss  of  real  wages. 

The  possession  of  this  normally  large  amount  of  dead 
stock  is  not  so  much  to  be  considered  as  itself  a  tax 
upon  the  foreign  consumer,  as  the  form  in  which  the  tax 
upon  him,  caused  by  the  equation  of  international  de- 
mand being  unfavorable,  exj)resses  itself  and  is  gathered 
by  the  nation  that  supplies  him  with  manufactured  goods  ; 
but  it  does  enable  such  nation  to  lay  a  tribute  upon  him 
in  the  shape  of  profits  and  interest  upon  loans  and  invest- 
ments in  his  country  that  would  else  have  been  made  from 
home  accumulations  of  dead  stock,  only  possible  to  a 
manufacturing  country.  This  commercial  tribute  is  very 
great  in  amount,  and  is  an  addition  to  the  other  injuries 
I  have  enumerated  as  resulting  to  an  agricultural  nation 
from  an  unrestricted  intercourse  with  manufacturing 
ones.* 

*  "  Before  closing  this  discussion,  it  is  fitting  to  point  out  in  what  man- 
ner and  degree  the  preceding  conclusions  are  affected  by  the  existence  of 
international  payments  not  originating  in  commerce^  and  for  which  no 
equivalent  in  cither  money  or  commodities  is  expected  or  received ;  such  as 
a  tribute,  or  remittances  of  rent  to  absentee  landlords  or  of  interest  to  for- 
eign creditors,  or  a  government  expenditure  abroad  such  as  England  incurs 
in  the  management  of  some  of  her  colonial  dependencies.  .  .  . 


THE  EQUATIO^N"  OF  INTERNATIONAL  DEMAND.    199 

No  explanation  of  the  fact  that  manufacturing  are  the 
lending  and  agricultural  the  borrowing  nations  of  the 
world,  other  than  that  here  given,  is  possible ;  and  the 
verification  of  my  claim,  that  the  equation  of  interna- 
tional demand  is  persistently  unfavorable  to  agricultural 
nations,  is  complete. 

Fourthly,  it  aids  in  the  explanation  of  the  observed 
fact,  that,  as  nations  grow  in  capitalized  wealth,  there  is  a 
tendency  for  the  normal  rate  of  interest — the  rate  under 
which  capitalists  are  content  to  go  on  accumulating — to 
be  lowered.  This  tendency  is,  to  a  large  extent,  explica- 
ble in  the  present  state  of  the  science,  but  the  principle 
here  enunciated  affords  an  additional  reason  why  the  fact 
occurs :  when  the  amount  of  dead  stock  is  naturally  larger 
in  one  country  than  in  another,  fresh  accumulations  of 
the  same  amount  will  form  a  smaller  percentage  of  the 
total,  and  will  not  affect  the  rate  of  profit  so  much  as 
when  added  to  the  accumulations  of  a  nation  whose 
normal  amount  of  dead  stock  is  small.     The  tendency 

"  To  begin  with  the  case  of  barter.  The  supposed  annual  remittances 
being  made  in  commodities,  and  being  exports  for  which  there  is  to  be  no 
return,  it  is  no  longer  requisite  that  the  imports  and  exports  should  pay  for 
one  another;  on  the  contrary,  there  must  be  an  annual  excess  of  exports 
over  imports,  equal  to  the  value  of  the  remittance.  If,  before  the  country 
became  liable  to  the  annual  payment,  foreign  commerce  was  in  its  natural 
state  of  equilibrium,  it  will  now  be  necessary,  for  the  purpose  of  effecting 
the  remittance,  that  foreign  countries  should  be  induced  to  take  a  greater 
quantity  of  exports  than  before ;  which  can  only  be  done  by  offering  those 
exports  on  cheaper  terms,  or,  in  other  words,  by  paying  dearer  for  foreign 
commodities.  The  international  values  will  so  adjust  themselves  that  either 
by  greater  exports,  or  smaller  imports,  or  both,  the  requisite  excess  on  the 
side  of  exports  will  be  brought  about ;  and  this  excess  will  become  the  per- 
manent state.  The  result  is,  that  a  country  lohich  makes  regular  payments 
to  foreign  countries,  besides  losing  wJiat  it  pays,  loses  also  something  more  by 
the  less  advantageous  terms  on  which  it  is  forced  to  exchange  its  productions 
for  foreign  commodities.''^ — (Mill's  "Principles.") 


200  CAPITAL  AND  POPULATION. 

to  accumulate  is  thereby  strengthened,  as  the  risk  of  its 
proving  entirely  useless  is  lessened,  and  the  same  amount 
of  accumulations  has  less  effect  in  lowering  the  rate  of 
profit. 

The  existence  of  a  normally  large  dead  stock  is  an  ele- 
ment of  security,  and  as  such  affects  the  desire  to  accumu- 
late. Capitalists  are  always  better  content  to  invest  in 
securities  affording  a  uniform  return  than  in  those  afford- 
ing a  variable  one,  the  same,  or  even  somewhat  greater, 
in  average  amount.  They  will,  therefore,  be  willing  to 
add  more  to  a  normally  large  dead  stock  than  to  a  nor- 
mally small  one,  even  if  thereby  the  rate  of  profit  is 
somewhat  lessened.  It  is  also  to  be  noticed  that,  if  the 
equation  of  international  demand  remains  as  favorable  as 
before  to  the  manufacturing  nation,  a  lowering  of  the 
rate  of  profit  will  not  reduce  the  price  at  which  it  sells  its 
manufactured  goods.  Such  price  depends  upon  the  equa- 
tion and  not  upon  the  rate  of  profit ;  but  such  lowering  of 
the  rate  of  profit,  as  it  can  not  lessen  the  aggregate  of 
manufacturing  profits,  will  cause  a  further  increase  in  the 
normal  amount  of  dead  stock  which  the  manufacturing 
nation  will  hold  and  possess. 

I  desire  to  call  attention  to  the  explanation,  afforded 
by  the  principles  and  tendencies  here  enunciated,  of  an 
otherwise  inexplicable  historical  fact.  I  refer  to  the  recent 
and  apparently  permanent  lowering  of  the  rate  of  interest 
and  profits  in  the  United  States.  Free-traders  are  accus- 
tomed to  assert  that  our  undeniable  prosperity  under  pro- 
tection is  owing  to  our  great  natural  resources,  and  is  in 
spite  of  our  fiscal  policy  and  not  due  to  it.  They  forget 
that  the  gain  in  the  efficiency  of  labor  due  to  free  trade 
is  in  exact  proportion  to  the  agricultural  advantages  which 
a  nation  possesses.     The  more  fertile  a  nation  is,  there- 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    201 

fore,  the  greater  should  be  her  loss  in  adopting  a  pro- 
tective policy,  if  they  are  right  as  to  the  effects  of  free 
trade  and  protection  upon  the  distribution  of  wealth. 
Protection  to  manufactures  should  be  more  disastrous  to 
us  than  to  nations  whose  manufacturing  industries  less 
need  protection.  Their  explanation  is  evidently  faulty, 
because  our  advantage  in  natural  resources  can  not  over- 
balance our  mistaken  policy,  if  the  results  of  that  policy 
are  disastrous  in  proportion  to  our  natural  advantages. 
The  fact  remains  that  we  have  prospered  and  are  pros- 
pering, and  have  succeeded  in  accumulating  vast  resources 
in  fixed  capital  and  in  active  and  dead  stock,  and  that  the 
latter  species  of  wealth  has  increased  in  greater  propor- 
tion than  the  other  two.  It  is  this  latter  fact  that  explains* 
the  permanent  lowering  of  our  normal  rates  of  profit  and 
interest.  The  equation  of  international  demand  is  no 
longer  against  us.  Our  capital  is  replacing  foreign  cap- 
ital, as  is  shown  by  the  comparative  decrease  in  our  for- 
eign obligations.  We  yet  owe  too  much  abroad,  and 
have  as  yet  only  begun  to  avail  ourselves  of  foreign  in- 
vestment as  an  avenue  for  the  escape  of  superabundant 
means.  But  we  are  rapidly  paying  our  debts,  and  are 
commencing  to  invest  in  other  countries,  notably  in  Mex- 
ico. By  supplying  ourselves  with  manufactured  goods 
we  have  lessened  our  demand  for  foreign  goods,  and  are 
obtaining  those  we  yet  require  at  cheaper  rates  and  are 
enjoying  a  vast  increase  of  capitalized  wealth  and  a  very 
great  industrial  activity.  The  efficiency  of  our  labor  is 
undoubtedly  somewhat  lessened,  but  that  the  loss  result- 
ing from  this  has  been  more  than  made  up  to  us  by  the 
increased  aggregate  of  our  profits,  by  the  increase  in  our 
productive  efficiency  through  the  fuller  employment  of 
our  labor,  and  by  the  adjustment  of  the  equation  in  our 


202  CAPITAL  AND  POPULATION. 

favor,  can  not  be  denied  as  an  actually  existing  fact,  and  a 
fact  inexplicable  on  any  other  theories  than  those  here 
insisted  upon.  That  much,  if  not  all,  of  our  prosperity 
has  been  obtained  at  the  expense  of  European  nations, 
England  especially,  is  also  self-evident.  The  develop- 
ment of  our  railroads  and  water-ways  and  the  discovery 
of  our  ability  to  export  live-stock  and  fresh  meat  have 
cheapened  agricultural  produce  to  such  extent  that  Eng- 
land can  no  longer  cultivate  her  poorest  lands  and  pay 
the  same  real  wages  as  before.  She  is,  therefore,  obliged 
to  throw  land  out  of  cultivation,  at  the  very  time  that  she 
must  lower  her  margin  of  cultivation,  if  she  would  retain 
her  manufacturing  supremacy,  although  the  real  wages  of 
her  laboring  classes  are  already  so  low  that  they  can  not 
well  be  further  reduced. 

A  party  is  arising  in  England  antagonistic  to  free 
trade.  They  demand  "  fair  trade,"  by  which  they  mean 
protective  duties  on  imports  from  those  nations  who  dis- 
criminate in  their  tariffs  against  the  productions  of  Eng- 
land. How  futile,  nay  disastrous,  such  a  policy  will  be, 
can  not  fail  to  be  appreciated  by  any  one  who  has  fol- 
lowed the  argument  of  this  treatise.  A  nation  with  a 
low  margin  of  cultivation  can  not  protect  itself  against 
one  with  a  high  margin.  It  is  absolutely  helpless  in  the 
matter  of  reprisals.  Any  attempt  in  that  direction  only 
magnifies  the  injury.  The  sole  advantage  that  a  pro- 
tective policy  can  afford  is  due  to  its  diverting  labor 
from  agriculture  to  manufactures.  Protective  duties  in 
England,  leveled  against  an  agricultural  nation  with 
which  she  trades,  can  only  result  in  the  opposite  direc- 
tion, viz.,  the  diversion  of  her  industry  from  manufact- 
ures to  agriculture.  This  will  render  her  vast  capital 
too  great  for  her  needs.    It  will  depress  the  rate  of  profit. 


THE  EQUATION  OF  INTERNATIONAL  DEMAND.    203 

and  lead  to  a  corresponding  cessation  of  industry.  It 
will  divert  her  labor  and  capital  to  the  employments  that 
will  yield  the  least  aggregate  returns  in  wages  and  profits. 
England's  interests  are  advanced  by  free  trade.  Its  gen- 
eral adoption  would  enable  her  to  appropriate  to  herself 
great  advantages  at  the  expense  of  the  nations  with 
which  she  trades,  but  there  will  some  advantage  remain 
to  her  by  adhering  to  that  policy  even  when  all  the  agri- 
cultural nations,  from  whom  she  imports  food  and  raw 
produce,  have  excluded  her  own  products.  It  is  this 
fact  that  has  misled  the  English  school  of  economists. 
Their  own  national  affairs  are  subserved  by  free  trade 
alone,  and  afford  an  apparently  complete  verification  and 
justification  of  the  doctrine,  when  the  interests  of  other 
nations  are  unconsidered.  It  was  very  natural  that  Mill 
and  Ricardo  should  have  given  undue  prominence  to 
the  facts  under  their  own  eyes,  and  should  have  neg- 
lected facts  never  presented  in  English  experience ;  and 
as  natural  that  American  economists  and  statesmen 
should  have  so  largely  refused  to  accept  their  conclusions, 
despite  their  not  being  able  to  detect  the  logical  flaw  in 
their  arguments.  The  consideration  of  the  tendency  in 
civilized  nations  for  capital  to  be  accumulated  faster  than 
it  can  be  utilized,  even  by  a  growing  population,  supplies 
the  logical  premise  needed,  and  explains  as  they  never 
have  been  explained  the  economic  facts  actually  existent. 


CHAPTEE  XII. 

DISTRIBUTION   OF   WEALTH   IN   A   PROTECTED  NATION. 

Having  now  established  on  economic  principles  that 
the  policy  of  protection  may  augment  the  gross  revenue 
of  an  agricultural  nation,  the  consideration  naturally 
arises  as  to  what  effect  it  will  have  upon  the  distribution 
of  such  gross  revenue  between  the  two  great  classes  of 
laborers  and  capitalists.  Philanthropic  statesmen  might 
well  hesitate  to  adopt  a  policy  which  made  a  nation 
richer,  partly  at  the  expense  of  its  working  population. 
Disparity  of  individual  fortunes  is  the  great  curse  of 
modern  society,  and  any  advantage  gained  entirely  at  the 
expense  of  increasing  that  disparity  might  well  be  fore- 
gone. There  are  even  some  moral  and  social  disadvan- 
tages in  such  increase  when  it  is  not  obtained  at  the 
expense  of  those  who  have  little,  but  solely  from  an  aug- 
mentation of  the  gross  revenue  of  society.  I  at  once 
acknowledge  that  the  policy  of  protection  is  open  to  this 
latter  objection ;  but  it  is  not,  I  think,  to  the  former,  al- 
though that  can  not  be  so  accurately  determined.  The 
bulk  of  the  benefit  certainly  goes  to  the  increase  of  prof- 
its, but  some  of  it,  I  think,  accrues  to  the  wages-fund.  I 
will  here  consider  the  reasons  for  this  conclusion. 

It  will  be  well  first  to  notice  a  temporary  benefit  that 
laborers  receive  immediately  upon  the  adoption  of  the 


"WEALTH  DISTRIBUTION  IN  A  PROTECTED  NATION.  205 

policy.  The  increase  of  capital  necessitated  by  the  di- 
version of  agricultural  labor  to  manufactures  raises  the 
rate  of  profit  and  lowers  proportional  wages,  and  real 
wages  also  in  so  far  as  the  laborer  is  a  consumer  of  the 
protected  article.  This  effect  upon  real  wages  is,  how- 
ever, more  than  made  up  to  the  laborers  as  a  class  by  the 
increased  employment  that  results  from  such  a  state  of 
affairs,  and  this  increase  of  employment  lasts  until  the 
needed  capital  is  accumulated,  when  proportional  wages 
advance  to  the  same  point  as  before  and  real  wages  also, 
except  as  the  laborer  is  a  consumer  of  the  protected  arti- 
cle, and  the  amount  of  employment  is  the  same,  other 
things  being  equal,  as  it  was  originally.  How  much  ad- 
vantage this  temporary  increase  of  the  wages-fund  will 
be  to  the  laborer  will  depend  upon  the  rapidity  with 
which  the  needed  accumulations  are  made  by  the  capital- 
ists. If  all  the  increased  product  is  converted  into  capi- 
tal, the  increase  of  the  wages-fund  will  be  exactly  equal 
to  the  amount  of  such  capital ;  if  only  half,  the  benefit 
to  the  laboring  class  will  be  twice  that  amount ;  and  if 
only  one  tenth,  ten  times,  subject  of  course  to  their  loss 
as  consumers  of  the  protected  article.  As  a  matter  of 
fact,  it  may  perhaps  be  estimated  that  they  gain  about 
five  times  the  amount  accumulated.  This  gain  is,  how- 
ever, temporary,  and  of  no  permanent  advantage  to  the 
laborer,  unless  it  leads  him  to  advance  his  standard  of 
living,  and  it  can  hardly  do  this  to  any  appreciable  de- 
gree. He  suffers,  eventually,  a  permanent  loss  as  a  con- 
sumer of  the  protected  article. 

Several  benefits  obtained  by  him  are,  however,  to  be 
offset  against  this  loss.  And  it  is  hardly  possible  but  that 
he  derives  some  net  benefit  from  the  policy  when  it 
really  leads  to  any  considerable  increase  in  the  national 


206  CAPITAL  AND  POPULATION. 

production.  Whether  he  retains  the  benefit  will,  of 
course,  depend,  as  do  all  other  benefits  conferred  upon 
him,  upon  his  using  it  as  an  enhancement  of  individual 
comfort,  or  as  affording  him  an  opportunity  of  marrying 
earlier  and  having  a  more  numerous  family. 

The  diversion  of  labor  from  agriculture  to  manufact- 
ures raises  in  some  degree  the  margin  of  cultivation,  and 
this  can  not  take  place  without  a  rise  in  real  wages. 
On  account  of  the  abundance  of  our  fertile  land,  this  has 
little  influence  upon  the  American  margin  at  the  present 
time,  but  we  are  rapidly  nearing  the  point  when  it  will 
have  a  very  important  effect,  as  most  of  our  best  lands 
are  now  under  some  sort  of  cultivation,  and,  the  moment 
we  commence  to  take  up  land  at  all  inferior  to  our  best, 
we  will  also  feel  the  beneficial  effect  of  the  diversion 
of  our  labor  from  tilling  the  soil. 

Again,  whatever  increase  in  their  wages  skilled  arti- 
sans receive  is  an  addition  to  the  wages-fund  of  a  very 
real  and  important  kind,  although  the  benefit  goes  only 
to  a  few  of  the  class,  and  does  not  improve  the  condition 
of  the  lowest  class  of  laborers. 

The  benefit  resulting  from  the  increased  employment 
of  females  and  youths  is,  however,  a  substantial  addition 
to  the  incomes  of  all  classes  of  laborers,  and  one  very  con- 
siderable in  its  amount;  and  one  also  that  assists  the 
class  in  restraining  the  instinct  that  leads  to  a  too  rapid 
increase  of  population. 

There  is  also  probably  some  benefit  derived  from  the 
greater  diversity  in  the  industries  carried  on  by  a  pro- 
tected people.  I^ot  only  do  laborers  more  easily  find  the 
employment  for  which  they  are  intellectually  and  phys- 
ically best  fitted,  and  in  which,  therefore,  labor  is  less 
onerous  to  them  and  more  efficient  in  production,  but  the 


WEALTH  DISTRIBUTION  IN"  A  PROTECTED  NATION.  207 

amount  of  employment  is  more  uniform,  as  the  greater 
the  variety  of  a  nation's  pursuits,  the  less  liable  are  they 
to  be  all  depressed  at  the  same  time,  and  such  variety  is 
in  itself  an  education  to  the  laborer,  which  spurs  him  to 
strive  for  something  better  than  his  present  lot. 

The  possessors  of  great  wealth  can  not  keep  its  enjoy- 
ment wholly  to  themselves.  The  beauty  of  their  resi- 
dences and  grounds  gives  pleasure  to  the  eye  of  the 
passer-by  as  well  as  to  the  owners,  and  the  refinements 
of  life  with  which  they  surround  themselves  civilize  and 
refine  their  menials  as  well  as  themselves,  though  not,  of 
course,  to  the  same  degree.  Life  in  a  rich  community  is 
far  more  attractive,  and  a  better  thing  to  the  laborers, 
than  life  in  a  poor  and  unkempt  land,  even  if  they  pos- 
sess no  greater  material  comforts. 

There  is  also  a  substantial  advantage  to  the  laboring 
class  in  living  in  a  community  better  able  to  protect  itself 
against  its  neighbors ;  and,  as  Ricardo  so  conclusively 
shows,  the  strength  of  a  nation  in  war  depends  not  upon 
its  gross  but  upon  its  net  revenue. 

It  can  not  be  doubted  but  that  the  sum  of  these  ad- 
vantages more  than  repays  to  the  laborer  the  enhanced 
price  of  the  manufactured  commodities  he  consumes,  and 
even  that  he  can  at  any  time  recover  by  restraining  popu- 
lation. To  some,  though  probably  a  slight  degree,  he  is 
benefited  by  protection.  If  he  is  not,  the  moral  right 
of  the  nation  to  take  fifty  cents  from  his  pocket  to  give  a 
dollar  to  the  capitalist  may  well  be  questioned,  although, 
even  if  that  were  the  result,  much  might  be  advanced  in 
defense  of  such  action.  But  it  is  not  the  result,  and, 
although  capitalists  reap  nearly  all  the  benefit  of  protec- 
tion, some  benefit  undoubtedly  is  obtained  by  the  work- 
ing classes. 


208  CAPITAL  AND  POPULATION. 

The  claim,  so  blatantly  made  about  election-time,  that 
the  purpose  of  protection  is  to  protect  American  laborers 
against  the  competition  of  "  pauper  labor,"  is,  of  course, 
absurd,  and  can  not  be  too  strongly  reprobated.  To  make 
the  laborers  understand  their  true  economic  position  is 
the  first  duty  of  every  student  and  teacher  of  political 
and  social  economy,  as  it  is  only  when  they  appreciate 
the  true  conditions  and  limitations  of  their  position  that 
the  effort  to  raise  the  class  by  co-operation  and  the  re- 
straint of  their  instinct  to  over-populate  can  be  at  all 
effectual.  To  confuse  their  minds  by  false  economic 
ideas  is  to  do  them  the  greatest  possible  injury. 

The  gross  income  of  the  class  of  capitalists  can  not 
but  be  increased  as  the  result  of  a  protective  policy,  even 
in  the  rare  cases  when  it  entails  a  positive  loss  to  the 
laborers.  Even  then  some  national  advantages  result. 
.The  refining  influences  of  a  wealthy  class  extend  far  be- 
yond its  own  borders,  and,  as  we  have  seen,  the  existence 
of  such  a  class  in  relatively  large  proportions  adds  greatly 
to  the  offensive  and  defensive  power  of  a  nation — both 
most  desirable  results. 

The  existence  of  such  a  class  in  larger  proportion  than 
would  occur  under  free  trade  will  cause  a  further  aug- 
mentation of  national  wealth  that  I  have  not  yet  noticed. 
Every  increase  of  capital,  needed  in  industry,  being 
created  by  the  very  demand,  or  rather  by  the  otherwise 
idle  labor,  which  such  demand  utilizes,  it  follows  that 
every  diversion  of  capital  to  uses  which  do  not  affect  the 
rate  of  profit  is  an  addition  to  the  possible  wealth  of  a 
people.  Such  species  of  wealth  is  that  reserved  for  pro- 
longed unproductive  consumption. 

The  elegant  residences,  the  public  parks  and  build- 
ings, the  museums,  the  art-galleries,  the  places  of  amuse- 


WEALTH  DISTRIBUTION"  IN  A  PROTECTED  NATION.  209 

ment,  the  sea-side  resorts,  all  these,  whatever  their  expense 
to  individuals,  cost  the  nation  nothing  but  labor  that  would 
otherwise  -be  wasted.  Such  wealth  affords  no  material 
profit  to  the  community,  though  it  is  more  or  less  made 
to  yield  a  profit  to  individuals,  but  this  merely  affects  the 
distribution  of  wealth,  not  its  creation  ;  none  the  less  does 
it  yield  a  revenue,  for  it  gratifies,  without  its  own  diminu- 
tion, the  very  wants  and  desires  the  ultimate  satisfaction 
of  which  by  material  products  alone  gives  value  to  mate- 
rial products  themselves.  It  is  the  noblest  and  best 
wealth  a  nation  can  possess,  while  its  cost  to  it  is  the 
least. 

But  the  amount  of  such  wealth  will  always  be  regu- 
lated more  or  less  closely  by  the  amount  of  capital  which 
a  nation  is  able  to  employ  productively.  Any  policy, 
therefore,  that  increases  such  amount,  even  if  it  results 
in  no  increase  of  the  annual  material  product,  will  in- 
crease the  amount  of  this  species  of  wealth  and  the 
gratifications  it  annually  and  for  all  time  yields.  IN^ot 
only  will  it  be  increased  in  proportion  to  the  increase 
of  capitalized  wealth,  but  in  a  greater  proportion,  as,  the 
larger  the  incomes  of  the  rich  are,  the  relatively  more  of 
them  will  they  devote  to  these  purposes  and  to  the  more 
refined  and  aesthetic  enjoyments  which  they  afford.  N'o 
nation  can  hope  to  advance  beyond  its  fellows  in  culture, 
refinement,  and  art,  and  in  intellectual  and  aesthetic  at- 
tainments, that  does  not  possess  a  very  large  proportion 
of  such  wealth,  and  no  agricultural  nation  ever  has  or 
ever  can  possess  such  wealth  in  any  considerable  degree 
so  long  as  it  confines  its  energies  and  restricts  its  capital 
to  the  tilling  of  the  soil. 


CHAPTER  XIII. 

KENT. 

RicAEDO  says  in  his  chapter  on  "  Rent,"  page  40  : 

"  The  rise  of  rent  is  always  the  effect  of  the  increasing  wealth 
of  the  country,  and  of  the  difficulty  of  providing  food  for  its  aug- 
mented population.  It  is  a  symptom  but  it  is  never  a  cause  of 
wealth  ;  for  wealth  often  increases  most  rapidly  while  rent  is  either 
stationary  or  even  falling.  Kent  increases  most  rapidly  as  the  dis- 
posable land  decreases  in  its  productive  powers.  Wealth  increases 
most  rapidly  in  those  countries  where  the  disposable  land  is  most 
fertile,  where  importation  is  least  restricted,  and  where,  through 
agricultural  improvements,  productions  can  be  multiplied  without 
any  increase  in  the  proportional  quantity  of  labor,  and  where  con- 
sequently the  progress  of  rent  is  slow." 

Though  in  the  main  I  agree  with  Ricardo  in  this 
passage,  except,  of  course,  where  he  affirms  that  wealth 
increases  most  rapidly  where  importation  is  least  re- 
stricted, the  meaning  would  be  clearer  to  me  if  Ricardo 
had  more  accurately  defined  what  he  means  by  wealth. 
Except  as  increase  of  wealth  (however  defined)  increases 
the  demand  for  native  food,  it  has  no  effect  upon  rent, 
and  rent  may  decline,  even  when  population  is  increasing, 
if  the  nation  imports  an  additional  proportion  of  its  food- 
supply. 

Wealth  may  be  intended  to  mean,  and  in  the  quoted 
passage  I  take  it  as  meaning,  the  aggregate  wealth  of  the 
community,  or  we  may  mean,  by  a  wealthy  country,  one 
whose  wealth  is  great  jper  cajpita  of  its  population.     Or 


EENT.  211 

we  may  not,  in  using  the  term,  refer  to  accumulations  at 
all,  but  to  either  the  gross  amount  of  the  annual  prod- 
uct or  the  average  amount  ^6'/'  capita.  These  four  mean- 
ings are  very  different,  and  the  relations  of  wealth  to 
rent  vary  greatly  according  to  which  of  the  four  mean- 
ings we  attach  to  the  word.  The  proper  aim  of  political 
and  social  endeavor  is  to  attain  wealth  in  the  last  meaning 
I  have  noted.  In  that  sense  an  increase  of  wealth  is 
rather  coincident  with  a  fall  than  with  a  rise  in  rentals. 

A  rise  in  rent  is  the  cause  of  an  increase  of  accumu- 
lations, because  it  enables  a  nation  to  divert  more  of  its 
labor  to  those  industries  which  can  utilize  accumulations. 
A  rise  in  rent  may  therefore  be  a  cause  as  well  as  a  symp- 
tom of  wealth. 

It  is  customary  to  regard  rent  as  a  transfer  of  wealth 
from  the  consumer  of  food  to  the  landlord,  and  this  is 
true  of  rent  so  far  as  it  is  due  to  the  natural  or  acquired 
fertility  of  the  soil.  But  it  has  not  been  observed — at 
least  I  do  not  remember  that  it  has  been  observed — that 
the  rent  due  to  propinquity  to  market  is  an  exception  to 
this,  in  so  far  as  the  consumers  of  food  at  an  enhanced 
price  are  artisans.  When  this  is  the  case,  rent  due  to 
propinquity  is  paid  by  the  consumer  of  manufactured 
goods.  Food  is  always  somewhat  higher  in  towns  and 
cities  than  in  the  country,  and,  as  a  consequence  of  this, 
lands  near  towns  and  cities  bring  a  rental  additional  to 
that  due  to  their  inherent  or  acquired  fertility  exactly, 
in  the  long  run,  equal  to  such  enhanced  price  due  to  the 
saving  in  cost  of  carriage.  When,  therefore,  proportional 
and  real  wages  of  artisans  and  agricultural  laborers  are 
the  same,  the  money-wages  of  the  artisans  will  be  higher, 
and  this  addition  to  their  money-wages  will  enhance  the 
price  of  the  goods  they  manufacture,  and  will  finally  be 


212  CAPITAL  AND  POPULATION. 

paid  bj  the  consumer  of  those  goods.  It  follows,  there- 
fore, that  the  consumer  of  any  imported  manufactured 
article  pays  some  rent  to  a  foreign  landlord,  and  that  a 
country  that  protects  its  manufactures  escapes  thereby 
the  payment  of  rent  to  foreigners. 

If  the  industries  that  spring  up  in  consequence  of  pro- 
tection are  concentrated  in  special  localities  to  the  same 
degree  as  in  the  other  country,  the  consumers  of  goods 
do  not  save  this  rental.  ,  If  they  concentrate  in  greater 
degree,  they  may  even  pay  more  than  they  did  before ; 
and,  if  in  lesser  degree,  less ;  but,  whatever  the  amount, 
they  pay  it  to  their  own  countrymen. 

The  sum  total  of  rentals  due  to  propinquity  is  consid- 
erable, and  it  is  certainly  better  for  a  nation  to  pay  it  to 
its  own  than  to  foreign  landlords ;  and  this  effect  of  pro- 
tection, as  far  as  it  goes,  is  a  valid  argument  in  its  favor. 
The  idea  here  expressed  seems  to  be  at  the  bottom  of  the 
popular  idea  that  a  home  is  preferable  to  a  foreign  mar- 
ket. That  it  is  so  has  been  instinctively  felt,  rather  than 
logically  appreciated,  but  a  consideration  of  the  fact  that 
rent  due  to  propinquity  is  an  element  of  the  cost  of 
goods  shows  that  the  popular  idea  is  right,  however  illog- 
ically  held  and  expressed. 

The  beneficial  influence  of  protection  upon  the  rentals 
due  to  fertility  will  not,  of  course,  be  denied  by  the  most 
enthusiastic  free-traders.  A  diversion  of  industry  in  a 
protected  country  from  agriculture  to  manufactures  can 
not  but  occur,  and  this  forces  upon  countries  with  which 
it  trades  a  corresponding  and  inverse  diversion.  Its 
margin  of  cultivation  is  raised,  its  purely  agricultural 
rents  lowered,  and  rentals  due  to  propinquity  increased. 
This  in  some  degree  raises  the  average  remuneration  of 
its  labor  and  lowers  its  rentals,  thus  benefiting  its  laborers 


RENT.  213 

at  the  expense  of  its  landlords.  Such  benefit,  whatever 
its  amount,  is  in  the  more  even  distribution  as  well  as  the 
creation  of  wealth,  bettering  the  consumer  at  the  land- 
lord's expense,  whereas  the  benefit  derived  from  rentals 
due  to  propinquity  is  an  addition  to  national  wealth  at  the 
expense  of  the  rentals  of  the  landlords  of  other  nations. 

Where  the  benefits  of  the  concentration  of  manufact- 
ures are  an  offset  or  more  than  an  offset  to  the  increase 
of  rentals  due  to  propinquity  it  may  perhaps  be  technic- 
ally incorrect  to  consider  such  rentals  as  part  of  the  cost 
of  production  of  manufactured  goods.  That,  however, 
does  not  affect  my  argument,  as  in  any  case  they  are  a 
source  of  income,  under  free  trade,  to  foreigners,  which 
protection  enables  us  to  appropriate  to  ourselves  as  con- 
sumers or  landlords. 

The  rentals  yielded  by  water  privileges,  while  not 
strictly  an  element  in  the  cost  of  production,  are  likewise 
an  additional  income  obtained  by  protection,  which  for- 
merly pertained  to  those  who  supplied  us  with  the  pro- 
tected goods. 

While  it  is  immaterial  that  the  above  sources  of  in- 
come should  be  technically  considered  as  an  element  of 
cost  of  production,  I  must  contend  that  they  should  be  so 
regarded.  They  do  not,  indeed,  affect  the  price  at  which 
different  manufacturers  can  afford  to  produce,  any  more 
than  a  difference  in  the  rental  paid  by  them  affects  the 
relative  price  at  which  two  different  farmers  can  afford 
to  sell  the  products  of  their  farms ;  but  as  a  rise  in  agri- 
cultural rents  varies  the  proportion  in  which  raw  produce 
and  goods  will  exchange,  so  also  does  a  rise  in  manufact- 
uring rentals  increase  the  exchangeable  value  of  goods  as 
compared  with  raw  produce,  and  is  in  every  sense  an  ele- 
ment of  their  money  cost  and  exchangeable  value. 


CHAPTEE  XIY. 

COMMEECE. 

Foe  the  sake  of  simplicity,  I  have  heretofore  confined 
the  discussion  to  manufacturing  and  agricultural  commu- 
nities. A  few  words  in  reference  to  the  relations  of 
both  these  to  commercial  nations  is  fitting  in  this  place. 

The  four  great  divisions  of  human  industry  are  agri- 
culture, manufacturing,  exchanging,  and  rendering  serv- 
ices. The  latter  does  not  here  demand  our  considera- 
tion, and  we  have  already  discussed  the  first  two.  Com- 
merce, including  by  the  term  exchanges  from  place  to 
place  as  well  as  from  producer  to  consumer,  is  the  third. 
There  is,  indeed,  no  inherent  connection  between  ex- 
changes from  place  to  place  and  from  producer  to  con- 
sumer, but,  as  a  matter  of  fact,  the  tendency  is  more  or 
less  strong  for  the  same  class  of  individuals  to  engage  in 
both  employments,  though  not  so  strong  as  for  the  nations 
"which  most  largely  engage  in  the  carrying-trade  to  also 
engage  in  effecting  the  exchanges  of  the  goods  they  carry 
between  different  peoples.  This  tendency  in  commercial 
nations  is  greater  if  they  are  also  manufacturing  commu- 
nities, as  they  then  possess  an  additional  amount  of  capi- 
tal seeking  investment,  much  of  which  will  certainly  find 
its  way  to  employment  in  effecting  international  inter- 
change. 


COMMERCE.  215 

In  its  turn,  a  large  amount  of  carrying-trade  done  by 
a  nation  reacts  to  the  benefit  of  its  manufacturing  indus- 
tries, as  it  affords  cheaper  and  quicker  transit  to  its  ex- 
ports and  imports.  A  large  merchant  marine  and,  still 
more,  regular  steamship-lines  to  foreign  ports,  enable 
a  manufacturing  community  to  monopolize  markets  in 
which  she  has  no  other  advantage,  or  would  even  be  at 
a  disadvantage,  if  it  were  not  for  her  better  means  of 
communication. 

Commerce,  as  a  national  industry,  possesses  advan- 
tages over  both  agriculture  and  manufacture.  Far  back 
as  we  may  go  in  the  history  of  the  world,  we  invariably 
find  that  the  nations  whose  wealth,  in  proportion  to  their 
population,  was  the  greatest  were  distinctively  commer- 
cial peoples.  Tyre,  Sidon,  Carthage,  Yenice,  Holland, 
and  finally  England,  are  practical  illustrations  of  the  fact 
asserted.  The  illustrations  given  are  somewhat  com- 
plicated by  the  fact  that,  owing  to  the  mutual  stimulus 
which  the  two  forms  of  industry  exert,  the  carrying  na- 
tions have,  to  a  large  extent,  been  manufacturing  ones 
also ;  but  still  the  fact  is  evident  that  those  communities 
have  been  the  most  prosperous  who  directed  the  greatest 
proportion  of  their  industry  to  commerce. 

The  main  reason  of  this  (those  noticed  above  are  only 
secondary)  can  be  gathered  at  once  from  the  principles 
we  have  been  elucidating.  Transferring  and  exchanging 
commodities  utilize  more  capital  in  proportion  to  the 
labor  employed  than  either  branch  of  production  proper. 
The  gross  accumulations  and  the  gross  return  in  wages 
and  profits  together  are  larger  in  it  than  in  any  other 
forms  of  industry.  It  possesses,  therefore,  even  greater 
recommendations  as  a  national  employment  than  manu- 
facturing. 


216  CAPITAL  AND  POPULATION. 

What  are  the  causes  which,  under  free  trade,  deter- 
mine whether  or  not  a  nation  shall  engage  in  this  form  of 
industry  ?  Everything,  of  course,  which  lowers  or  raises 
the  price  at  which  she  can  afford  to  transport  goods  from 
one  place  to  another,  or  transfer  them  from  the  producer 
to  the  consumer. 

The  money  cost  of  transporting  goods  by  any  nation 
will  depend  mainly  upon  the  lowness  of  her  margin  of 
cultivation ;  the  lower  this  is,  the  lower  will  be  the  real 
and  money  wages  of  her  navigators,  and,  what  is  of  vastly 
more  importance,  the  lower  will  be  the  money  cost  of  her 
vessels  as  far  as  manufactures  enter  into  such  cost.  The 
money  cost  of  raw  products  will  be  slightly  greater,  and 
that  of  mineral  products  will  depend  upon  the  fertility 
of  her  mines  and  the  lowness  of  her  margin  as  affecting 
money- wages.  As  the  cost  of  putting  together  is  about 
ninety  per  cent  of  the  total  cost  of  a  vessel,  the  same 
merchant  marine  will  be  much  cheaper  in  money  to 
nations  with  low  margins — although  it  will  cost  them  a 
slightly  greater  expenditure  of  labor  on  account  of  raw 
produce  forming  a  small  ingredient  of  the  total  cost. 
But,  while  a  commercial  country  will  be  favored  by  a  low 
rate  of  real  wages,  she  will  be  benefited  by  a  high  rate 
of  proportional  wages,  as  they  will  not  increase  the 
money  value  of  her  marine,  while  they  will  considerably 
lessen  the  amount  of  the  return  her  capitalists  expect,  or, 
in  other  words,  they  will  be  willing  to  carry  for  a  rate 
yielding  a  smaller  profit  than  they  would  if  proportional 
wages  were  lower. 

But  investment  in  the  carrying-trade  differs  from  that 
in  manufactures,  not  only  in  the  proportion  of  its  amount 
to  the  labor  employed,  and  in  the  proportion  which  fixed 
capital  bears  to  circulating,  but  also  in  the  proportion  in 


COMMERCE.  217 

which  circulating  capital  wiU  be  divided  between  dead 
and  active  stock.  The  owners  of  marine  investment, 
unlike  manufacturers,  can  get  no  profit  at  all  from  dead 
stock  in  their  own  business.  Profit  comes  to  them  in 
the  form  of  money,  and  must  be  invested  in  fixed  capital 
(new  vessels),  or  outside  their  business  in  some  other  em- 
ployment, except,  indeed,  to  the  extent  in  which  they 
give  credit  for  freights  due,  and  this  can  never  be  consid- 
erable. Their  active  stock  is  also  relatively  small,  as  they 
employ  but  few  laborers  in  proportion  to  the  amount  of 
their  business. 

The  other  part  of  commerce,  into  which  they  in- 
evitably drift,  because  in  no  other  way  can  they  so  easily 
get  a  profit  from  any  dead  stock  they  accumulate — viz., 
the  purchase  of  foreign  produce  to  hold  for,  and  finally 
to  sell  to,  the  home  or  foreign  consumer — employs,  on 
the  other  hand,  hardly  any  fixed  capital  or  active  stock. 
Capital  80  used  consists  almost  wholly  of  dead  stock,  but 
of  dead  stock  that  yields  a  profit. 

This  hasty  explanation  of  the  nature  of  commerce, 
inadequate  as  it  is,  will  suffice  for  our  present  purpose, 
which  is  to  determine  the  relative  advantage  or  disadvan- 
tage of  an  agricultural  nation  doing  her  own  carrying,  or 
allowing  it  to  be  done  for  her,  as  it  inevitably  must  be, 
if  economic  laws  are  allowed  full  sway.  The  reader  can 
not  fail  to  see  that  this  advantage  or  disadvantage  can  not 
be  ascertained  from  a  comparison  of  the  money  cost  of 
doing  it  herself  with  what  other  nations  will  charge  for 
the  service.  The  comparison  must  be  between  what 
other  nations  charge  and  the  money  cost  of  the  agricult- 
ural labor  which  she  must  divert  to  the  carrying-trade 
to  do  it  herself ;  and  that  part  of  the  cost,  composed  of 
profits,  must  not  be  at  all  considered,  as  the  capital  to 


218  CAPITAL  AND  POPULATION. 

which  such  profits  will  accrue  will  be  an  addition  to  the 
wealth  of  the  country  that  will  cost  nothing  except  labor 
that  would  otherwise  be  wasted  in  idleness.  It  can  not 
be  doubted  for  a  moment  that  even  those  nations  who 
enjoy  the  highest  margin  of  cultivation  will  derive  some 
positive  benefit  from  monopolizing  all  thej  can  of  the 
carrying-trade  of  the  world,  and  that  any  loss  in  the 
efficiency  of  labor  they  suffer,  by  diverting  it  from  agri- 
culture to  commerce,  is  several  times  made  up  to  them 
in  the  form  of  profits. 

But  how  can  a  nation  protect  its  commerce  ?  It  can 
absolutely  prohibit  foreigners  from  engaging  in  its  own 
coasting-trade — and  all  or  nearly  all  nations  avail  them- 
selves of  this  opportunity,  the  free-traders  as  well  as  the 
rest,  antagonistic  as  it  is  to  their  principles ;  but  it  can 
not  prohibit  foreign  vessels  from  bringing  cargoes  to  or 
taking  them  from  its  shores,  neither  can  it  impose  a  duty 
or  tonnage  upon  them  for  so  doing.  Retaliation  here  is 
possible,  as  it  is  not  to  a  manufacturing  nation,  against 
whose  products  an  agricultural  nation  discriminates.  If 
any  nation  should  attempt  this,  other  nations  would  pro- 
hibit or  tax  her  vessels,  and  a  cessation  of  all  trade  would 
result.  An  agricultural  nation  finds  she  can  not  induce 
her  people  to  engage  in  commerce  unless  they  build  their 
own  vessels ;  but  they  can  not  do  this  profitably  unless 
she  protects  ship-building,  and  this  places  her  ship-owners 
at  a  further  disadvantage  in  their  competition  with  others. 
In  protecting  manufactures  she  controls  her  own  markets, 
and  that  is  sufficient  to  allow  for  a  gainful  diversion  of 
industry.  In  commerce  also  she  controls  part  of  her  own 
market,  the  coasting-trade  ;  but  the  advantages  of  engag- 
ing in  commerce  are  so  great  that  the  market  she  com- 
mands is  wholly  insufficient  for  gaining  all  the  advantage 


COMMERCE.  219 

possibly  derived  from  commerce  :  she  must,  therefore, 
subsidize — it  is  her  only  resource. 

Curiously  enough,  the  American  people  have  stead- 
fastly refused  to  adopt  this  course — mainly,  indeed,  for 
moral  reasons,  because  the  corruption  and  legislative 
bribery  pretty  sure  to  result  from  such  a  policy  are  rightly 
odious  to  them.  But  they  subsidize  railroads  with  public 
lands,  and  call  upon  consumers  to  pay  over  vast  sums  to 
manufacturers,  and  with  manifest  benefit  to  themselves 
as  a  people  ;  while  they  actually  force  American  ships  to 
carry  their  mails  at  a  positive  loss,  and  refuse  subsidies 
to  them  in  any  way  or  shape,  although  no  conceivable 
investment  of  the  public  money  would  so  augment  the 
total  production  of  the  country.  Protectionists  in  prin- 
ciple, we  refuse  protection  to  the  very  industry  in  which 
it  might  yield  to  us  the  greatest  benefits  at  the  least  cost. 
ITo  wonder  our  commerce  has  dwindled  away  to  the  van- 
ishing-point, now  that  we  have  lost,  by  the  substitution 
of  iron  for  wood  in  their  construction,  our  natural  advan- 
tage in  building  ships.  The  loss  of  our  commerce  is  a 
very  serious  drag  upon  our  national  prosperity,  in  every 
other  respect  so  wisely  fostered  by  our  fiscal  policy. 

England,  with  the  instinctive  keenness  in  regard  to  her 
own  advantage  which  she  always  shows,  despite  her  theo- 
ries, has  pursued  a  different  course,  and  has  heavily  subsi- 
dized her  steamship  lines,  and  none  of  her  free-traders 
lift  an  objecting  voice  to  the  policy.  And  yet,  if  protec- 
tion is  an  economic  mistake  as  applied  to  manufactures,  it 
is  equally  wrong  as  appUed  to  commerce.  J^o  reason  can 
be  given  that  justifies  the  one  that  will  not  also  justify  the 
other,  though  not,  to  be  sure,  to  the  same  degree.  Why 
should  the  British  nation  so  strenuously  endeavor  to  mo- 
nopolize this  branch  of  industry,  if  there  are  no  inherent 


220  CAPITAL  AND  POPULATION. 

advantages  in  one  kind  of  industry  over  another  not  ex- 
pressed bj  tlie  money  cost  at  which  they  can  be  carried 
on  by  native  or  by  foreign  labor  and  capital  ?  And  if  it 
be  once  admitted  that  there  are  such  inherent  differences, 
what  becomes  of  the  theory  of  free  trade  as  applied  to 
the  distribution  of  wealth  among  nations  ? 

In  Book  III,  chapter  xxv,  section  5,  Mill  says : 

"  It  is  worth  while  also  to  notice  another  class  of  small  but  in 
this  case  mostly  independent  communities,  which  have  supported 
and  enriched  themselves  almost  without  any  productions  of  their 
own  (except  ships  and  marine  equipments),  by  a  mere  carrying-trade, 
and  commerce  of  entrepot ;  by  buying  the  produce  of  one  country 
to  sell  it  at  a  profit  in  another.  Such  were  Venice  and  the  Hanse 
towns.  The  case  of  these  communities  is  very  simple :  they  made 
themselves  and  their  capital  the  instruments,  not  of  production,  but 
of  accomplishing  exchanges  between  the  productions  of  other  coun- 
tries. These  exchanges  are  attended  with  an  advantage  to  those 
countries — an  increase  of  the  aggregate  returns  to  industry — part  of 
which  went  to  indemnify  the  agents  for  the  necessary  expense  of 
transport,  and  another  part  to  remunerate  the  use  of  their  capital 
and  mercantile  skill.  The  countries  themselves  had  not  capital  dis- 
posable for  the  operation.  When  the  Venetians  became  the  agents 
of  the  general  commerce  of  Southern  Europe,  they  had  scarcely  any 
competitors ;  the  thing  would  not  have  been  done  at  all  without 
them,  and  there  was  really  no  limit  to  their  profits  except  the  limit 
to  what  the  ignorant  feudal  nobility  could  and  would  give  for  the 
unknown  luxuries  then  first  presented  to  their  sight.  At  a  later 
period  competition  arose,  and  the  profit  of  this  operation,  like  that 
of  others,  became  amenable  to  natural  laws.  The  carrying-trade 
was  tahen  vp  hy  Holland^  a  country  with  productions  of  its  own  and 
a  large  accumulated  capital.  The  other  nations  of  Europe  also  had 
now  capital  to  spare,  and  were  capable  of  conducting  their  foreign 
trade  for  themselves  ;  hut  Holland,  having  from  a  variety  of  circum- 
stances a  lower  rate  of  profit  at  home,  could  afford  to  carry  for  other 
countries  at  a  smaller  advance  on  the  original  cost  of  the  goods  than 
would  have  leen  required  hy  their  own  capitalists ;  and  Holland, 
therefore,  engrossed  the  greatest  part  of  the  carrying-trade  of  all 


COMMERCE.  221 

tlwse  countries  which  did  not  Jceep  it  to  themselves  hy  navigation  laws 
constructed,  lilce  those  of  England,  for  that  express  purpose.'''' 

Can  one  help  tlie  deduction,  in  tliis  short  epitome  of 
the  transfer  of  commercial  supremacy  from  nation  to  na- 
tion, that  wealth  followed  commerce  as  well  as  commerce 
wealth,  and  that  England  owes  her  present  commercial 
position  very  largely  to  the  protective  policy  of  her  navi- 
gation laws  and  to  her  subsidies  ? 

The  moral  and  intellectual  advantages  to  a  nation  of 
engaging  in  commerce  are  almost  if  not  quite  as  great  as 
the  material,  and  might  well  be  purchased  at  a  consider- 
able sacrifice  of  the  latter ;  this,  however,  is  somewhat 
apart  from  the  strict  scientific  aspect  of  the  question,  and 
I  will  merely  quote  in  this  connection  the  following  elo- 
quent passage  from  the  "  Principles,"  Book  III,  chapter 
xvii,  section  5  : 

"  But  the  economical  advantages  of  commerce  are  surpassed  in 
importance  by  those  of  its  effects,  which  are  intellectual  and  moral. 
It  is  hardly  possible  to  overrate  the  value,  in  the  present  low  state 
of  human  improvement,  of  placing  human  beings  in  contact  with 
persons  dissimilar  to  themselves,  and  with  modes  of  thought  and 
action  unlike  those  with  which  they  are  familiar.  Commerce  is  now 
what  war  once  was,  the  principal  source  of  this  contact.  Commer- 
cial adventurers  from  more  advanced  countries  have  generally  been 
the  first  civilizers  of  barbarians.  And  commerce  is  the  purpose  of 
the  far  greater  part  of  the  communication  which  takes  place  between 
civilized  nations.  Such  communication  has  always  been,  and  is  pe- 
culiarly in  the  present  age,  one  of  the  primary  sources  of  progress. 
To  human  beings  who,  as  hitherto  educated,  can  scarcely  cultivate 
even  a  good  quality  without  running  it  into  a  fault,  it  is  indispensa- 
ble to  be  perpetually  comparing  their  own  notions  and  customs  with 
the  experience  and  example  of  persons  in  different  circumstances 
from  themselves ;  and  there  is  no  nation  which  does  not  need  to 
borrow  from  others,  not  merely  particular  arts  or  practices,  but  es- 
sential points  of  character  in  which  its  own  type  is  inferior.     Fi- 


222  CAPITAL  AND  POPULATION. 

Dally,  commerce  first  taught  nations  to  see  witb  good-will  the 
wealth  and  prosperity  of  one  another.  Before,  the  patriot,  unless 
sufficiently  advanced  in  culture  to  feel  the  world  his  country,  wished 
all  countries  weak,  poor,  and  ill-governed  but  his  own ;  he  now  sees 
in  their  wealth  and  progress  a  direct  source  of  wealth  and  progress 
to  his  own  country.  It  is  commerce  which  is  rapidly  rendering 
war  obsolete,  by  strengthening  and  multiplying  the  personal  inter- 
ests which  are  in  natural  opposition  to  it.  And  it  may  be  said  with- 
out exaggeration  that  the  great  extent  and  rapid  increase  of  inter- 
national trade,  in  being  the  principal  guarantee  of  the  peace  of  the 
world,  is  the  great  permanent  security  for  the  uninterrupted  progress 
of  the  ideas,  the  institutions,  and  the  character  of  the  human  race." 

It  is  a  well-recognized  principle  that  the  good  policy 
of  any  proposed  internal  improvement  does  not  wholly 
depend  upon  its  proving  a  paying  investment.  We  sub- 
sidize our  railroads,  and  are  proposing  to  do  away  with 
tolls  on  the  Erie  Canal ;  and  who  can  doubt  that  the  lat- 
ter improvement  would  have  added  to  the  wealth  of  the 
nation,  even  if  it  had  not,  as  it  has,  paid  its  way  ?  Inter- 
nal commerce  has  always  enjoyed  the  fostering  care  of 
the  nation,  and  no  one  ventures  to  doubt  the  policy,  how- 
ever he  may  sometimes  object  to  special  applications  of 
it.  But  why  should  we  divert  our  labor  and  capital  from 
more  efficient  to  less  efficient  occupations  ?  For  two 
reasons:  First,  because  great  public  works  are  mainly, 
perhaps  eventually  wholly,  an  addition  to  the  possible 
wealth  of  the  nation — they  are  equivalent  to  a  destruc- 
tion of  some  of  its  capital,  which  destruction  is  very  soon 
made  whole  by  the  natural  action  of  human  industry  and 
thrift,  while  the  public  works  remain,  and  what  utilities 
and  enjoyments  they  do  subserve  are  just  so  much  ad- 
ditional to  the  real  income  of  the  people  ;  and,  secondly, 
because  we  perceive  that  the  economic  effect  of  no  trade 
or  occupation  is  confined  to  itself  alone,  but  ramifies 


COMMERCE.  223 

through  all  the  arts  and  employments  of  the  people.  But 
a  small  portion  of  the  profits  we  derive  from  our  railroads 
accrues  to  their  stockholders,  or  even  to  their  directors. 
The  larger  portion  of  benefit  is  realized  by  the  travelers, 
farmers,  and  merchants,  who  utilize  the  facilities  they 
afford.  It  is  safe  to  say  that  there  is  not  a  bankrupt  road 
in  our  country  that  has  not  been  a  source  of  wealth  to 
many  times  the  amount  of  its  own  cost.  Here  we  have 
indicated  another  advantage  of  a  protective  policy.  The 
interplay  of  benefit  between  the  various  occupations  and 
employments  of  men  can  not  but  be  greater  when  their  oc- 
cupations and  employments  are  most  diversified.  It  is  of 
no  advantage  to  a  nation  of  farmers  that  additional  land 
should  be  reclaimed,  but  it  is  of  advantage  that  machine- 
shops  should  be  built  in  their  midst,  independent  of  the 
fact  whether  such  shops  can  supply  them  with  machinery 
cheaper  than  they  procured  it  before ;  but  nothing  so 
reacts  upon  other  trades  and  employments  as  the  estab- 
lishment of  means  of  communication.  This  commerce 
effects,  and  thus  confers,  indirectly  through  agriculture 
and  manufactures,  even  greater  benefits  than  it  does  di- 
rectly through  its  own  legitimate  profits. 


CHAPTER  XY. 

ULTIMATE  EFFECTS  OF  FEEE  TRADE  AND  PROTECTION. 

I  HAVE  frankly  admitted  that  free  trade  increases  the 
total  efficiency  of  the  labor  of  the  world,  and  have  only 
differed  from  its  advocates  when  they  assert  that  all  na- 
tions who  adopt  the  policy  will  derive  some  portion  of 
the  benefit  resulting  from  it.  Based  on  this  admission, 
the  objection  will  be  formulated  that  the  views  here  ad- 
vanced are  immoral,  and  that  no  nation  has  the  right  to 
destroy  a  greater  gain  to  the  world  to  secure  a  lesser  gain 
to  itself.  It  is  to  be  feared  that  international  morality 
has  not  yet  reached  the  stage  in  which  nations  will  deny 
themselves  a  selfish  advantage  to  secure  the  ultimate  good 
of  the  race.  'None  the  less,  however,  is  it  their  duty  so 
to  do,  and  the  adoption  of  a  protective  policy  by  an  agri- 
cultural nation  is  decidedly  immoral,  if  it  ultimately  low- 
ers the  economic  and  social  status  of  other  nations  more 
than  it  benefits  its  own.  That  it  does  this  at  the  time, 
can  not  be  denied,  but  whether  it  does  so  ultimately  is 
another  question,  on  the  resolution  of  which  the  morality 
or  immorality  of  a  protective  policy  depends. 

The  ultimate  and  most  desirable  economic  condition 
of  the  globe  is  that  population  should  be  distributed 
among  the  different  countries  in  exact  proportion  to  their 
extent  and  fertility.  The  margin  of  cultivation  would 
then  be  everywhere  the  same,  and  the  nature  of  the  in- 


EFFECTS  OF  FREE  TRADE  AND  PROTECTION".    225 

dustries,  in  which  different  people  would  engage,  would 
be  fairly  and  naturally  regulated  by  the  natural  advan- 
tages of  their  soil  and  climate,  both  as  to  agriculture  and 
manufactures  and  the  carrying  on  of  commerce.  An 
advanced  physical,  intellectual,  and  moral  people  would 
still  possess  advantages  over  less  favored  races,  but  they 
would  be  advantages  that  belonged  to  it ;  whereas,  at 
present,  the  more  depressed  the  state  of  its  laboring 
population,  the  greater  the  advantage  possessed  by  a 
nation  in  the  most  desirable  forms  of  industry.  After 
such  ultimate  distribution,  for  any  nation  to  endeavor  to 
appropriate  to  itself,  by  a  protective  policy,  more  than  the 
share  of  such  occupations  that  came  to  it,  as  the  result 
of  an  unrestricted  commerce,  would  be  entirely  without 
justification,  and  would  necessarily  react  unfavorably 
upon  itself.  Free  trade  would  then  secure  to  each  peo- 
ple all  that  they  were  entitled  to  of  the  fruits  of  industry. 
There  would  be  no  distinctively  agricultural,  manufact- 
uring, or  commercial  nations.  Each  people  would  pro- 
duce for  itself  everything  in  the  production  of  which  its 
labor  was  sufficiently  efficient  as  compared  with  that  of 
its  neighbors,  and  trade  would  be  entirely  in  articles  in 
which  one  nation  possessed  over  others  some  natural  (not 
artificial)  advantage  in  soil,  climate,  or  the  character  of 
its  people. 

Free  trade  or  protection  is  the  morally  best  course 
for  nations  to  pursue,  according  as  either  tends  to  bring 
about  this  ultimate  and  desirable  equilibrium  of  human 
affairs  with  the  least  cost  of  labor  and  the  least  loss  of 
annual  production  while  it  is  being  attained;  and,  yet 
more  important,  that  policy  is  most  justifiable  under  which, 
when  the  equilibrium  is  attained,  the  uniform  and  world- 
wide margin  of  cultivation  will  be  the  highest. 


226  CAPITAL  AND  POPULATION. 

The  ultimate  equilibrium  will  be  reached  in  three 
ways,  viz. :  by  the  actual  transfer  of  labor  from  over- 
populated  to  under-populated  lands,  bj  the  peopling  of 
under-populated  communities  down  to  the  margin  of  the 
over-populated ;  and,  in  some  degree,  it  is  to  be  hoped, 
by  the  depopulation  of  over-pop nlated  lands.  The  redis- 
tribution of  capital  will  automatically  follow  that  of  labor. 

Protection  supplies  an  artificial  stimulus  to  all  of  these 
methods,  while  free  trade  acts  as  a  positive  discouragement 
to  any  transfer  of  labor  and  capital  by  any  of  them.  The 
former,  therefore,  hastens  our  approach  to  the  ultimate  and 
desirable  goal,  while  the  latter  greatly  retards  it.  Free 
trade  between  an  agricultural  and  a  manufacturing  nation 
tends  to  lower  the  margin  of  cultivation  in  the  former 
and  raise  it  in  the  latter,  without  any  transfer  of  popula- 
tion. If  population  in  both  remains  stationary,  the  two 
peoples  will  finally  possess  the  same  margin,  except  as  it 
is  caused  to  differ  by  the  expense  of  transporting  between 
them  the  raw  products  and  such  manufactured  goods  as 
are  consumed  by  laborers,  and  that  margin  will  finally 
settle  somewhere  between  their  previous  individual  mar- 
gins, and  will  be  nearer  to  the  high  margin  of  the  agri- 
cultural or  the  low  margin  of  the  manufacturing  country, 
according  to  the  amount  of  unoccupied  fertile  land  which 
the  agricultural  country  possesses.  If  that  amount  is 
great,  the  ultimate  margin  will  be  nearly  as  high  as  her 
own  previous  one ;  if  small,  it  will  be  but  little  above  the 
previous  margin  of  the  more  sterile  land.  When  this  state 
is  reached,  further  change  will  not  occur.  The  popula- 
tion of  the  sterile  country  will  still  be  very  much  larger 
in  proportion  to  its  fertility  and  extent  than  that  of  the 
fertile ;  and  this  will  necessitate  the  importation  of  a  large 
proportion  of  its  food  and  the  exportation  of  many  of  the 


EFFECTS  OF  FREE   TRADE  AND  PROTECTIOK     227 

manufactured  goods  required  by  tlie  laborers  of  the  fertile 
land.  The  ultimate  equilibrium  attainable  under  free 
trade,  the  average  margin  being  the  same,  will  not,  there- 
fore, be  as  beneficial  to  the  world  as  the  equilibrium  that 
will  result  from  protection,  because  production  in  the  for- 
mer case  will  be  saddled  with  the  expense  of  a  much  great- 
er expenditure  of  labor  in  transferring  commodities  and 
raw  products  from  place  to  place,  and  there  will  be  a  great 
increase  in  the  amount  of  dead  stock  that  will  necessarily 
be  held  and  stored  up,  which  not  only  will  cause  an 
unnecessary  abstinence  in  its  accumulation,  but  will  cause 
a  larger  share  of  the  total  product  to  accrue  to  the  capital- 
ists and  a  smaller  to  the  laborers  in  both  countries.  The 
final  efficiency  of  labor  will  not  be  so  great,  and  the 
difference  will  not  be  a  trivial  one,  but  a  very  substantial 
deduction  from  the  sum  of  human  enjoyments.  But 
population  will  not  remain  stationary.  It  will  increase 
in  both  lands.  If  such  increase  in  both  lands  presses 
equally  upon  the  food-supply,  the  relative  margins  will 
not  be  at  all  affected.  They  will  both  be  lowered  in  an 
equal  degree,  and  the  final  equality  in  margin  will  never 
be  reached.  If,  however,  as  would  actually  be  the  case, 
the  population  of  the  fertile  increased  somewhat  more 
rapidly  than  that  of  the  sterile  land,  the  two  margins 
would  approach  each  other,  but  at  a  declining  rate,  and 
the  approach  would  probably  cease  while  they  were  still 
a  considerable  distance  apart.  Whether  any  margin  of 
cultivation  shall  advance  or  recede  depends  entirely  upon 
the  amount  of  comforts  and  subsistence  which  contents 
the  laboring  classes  to  such  degree  that  they  will  consent 
to  increase,  keep  up,  or  decrease  their  numbers.  It  is 
well  settled  that  any  sudden  and  great  increase  in  real 
wages  wiU  not  be  wholly  expended  in  an  increase  of 


228  CAPITAL  AND  POPULATION. 

population,  and  that  anj  sudden  and  great  decrease  in 
wages  will  to  a  very  considerable  degree  lessen  the  num- 
ber of  marriages  and  births ;  whereas  a  very  gradual  in- 
crease in  real  wages  will  be  mainly  or  fully  lost  to  the 
laborers  by  an  increase  in  their  number,  while  a  very 
gradual  decrease  in  real  wages  will  rarely,  if  ever,  lead 
to  a  decrease  of  population,  but  will  result  in  the  laborers 
adapting  their  wants  to  a  lower  standard  of  life. 

The  first  effect  of  large  importations  of  cheap  food 
will  be  to  considerably  raise  real  wages  and  the  margin 
of  cultivation,  and  this  advantage  will  not  be  wholly  lost 
to  the  laborers  because  it  is  a  great  and  sudden  advantage. 
The  margin  of  cultivation  in  the  country  from  which  the 
food  is  imported  is  lowered  not  only  by  the  increase  of 
its  own  population,  but  by  the  increase  of  the  population 
of  the  manufacturing  nations  to  whom  it  exports  food,  or 
rather  by  the  increase  of  the  foreign  manufacturing  pop- 
ulation that  depend  for  their  subsistence  upon  imported 
food.  The  first  effect  of  international  intercourse  to  the 
agricultural  nation  will,  therefore,  be  to  cause  a  consider- 
able depression  of  the  real  wages  of  its  laborers.  This 
depression,  being  great  and  sudden,  will  be  resisted  by  its 
laboring  population  refusing  to  increase  at  all,  or  at  least 
as  rapidly  as  before.  The  first  effects,  therefore,  of  free 
trade  are  to  the  restraint  of  the  increase  of  the  joint  pop- 
ulation of  the  two  countries,  and  are  a  check  upon  the 
lowering  of  their  average  margin  of  cultivation.  The 
population  of  the  world  will  not  so  rapidly  increase,  and 
the  tendency  will  be  for  the  population  of  the  sterile 
country  to  increase  more  rapidly  than  before,  and  for  the 
population  of  the  fertile  country  to  increase  less  rapidly ; 
and  the  latter  effect  will  be  somewhat  greater  in  amount 
than  the  former.     Free  trade  will  confer  a  benefit  upon 


EFFECTS  OF  FREE  TRADE  AND  PROTECTION.    229 

the  world  in  this  respect  in  so  far  as  it  raises  the  average 
margin,  and  a  loss  in  cost  of  transport  and  dead  stock 
in  so  far  as  it  increases  or  sustains  the  disparity  in  popu- 
lation between  different  lands.  At  first  the  gain  may 
overbalance  the  loss,  but  finally  the  loss  will  be  greater 
than  the  gain. 

As  the  two  margins  approach  nearer  and  nearer  to 
each  other,  the  rise  in  real  wages  in  the  sterile  and  the 
fall  in  the  fertile  country  will  be  more  and  more  gradual. 
When  a  point  is  reached  where  the  laborer  in  the  sterile 
country  uses  the  whole  of  the  advantage  gained  in  in- 
creasing the  population,  the  margin  there  will  become 
fixed,  and  the  further  approach  of  the  two  margins  will 
be  entirely  due  to  the  laborers  in  the  more  fertile  land 
consenting  to  reduce  the  standard  of  life  at  which  they 
will  continue  to  increase  their  numbers.  If  they  finally 
refuse  to  go  on  increasing  before  the  two  margins  are 
brought  together,  they  will  no  longer  approach  each  other, 
but  will  remain  permanently  different.  Under  free  trade, 
therefore,  the  rate  of  approach  will  not  only  be  slower 
and  slower  as  the  margins  approximate,  but  the  approach 
itself  will  wholly  cease  while  they  are  yet  a  considerable 
•distance  apart.  The  ultimate  equilibrium  of  margins  will 
not  be  coincident  with  uniformity  of  margin,  and  agri- 
cultural nations  can  never  look  forward  to  the  time,  if 
they  neglect  to  adopt  a  protective  policy,  when  they  will 
not  be  under  some  disadvantage  in  the  carrying  on  of 
those  industries  which  possess  the  greatest  inherent  ad- 
vantages. They  must  also  deny  themselves  the  moral 
and  political  advantages  of  possessing  a  relatively  large 
population.  The  strength  and  dignity  of  nations  depend 
largely  upon  their  numbers,  and  the  ultimate  distribution 
of  population  under  free  trade  can  not  but  lessen  the  mili- 


230  CAPITAL  AND  POPULATION. 

tary  power  of  agricultural  peoples  and  their  influence  in 
the  councils  of  the  world.  To  attain  such  power  and  in- 
fluence has  always  been  a  proper  national  ambition,  the 
chief  aim  of  diplomacy,  and  one  of  the  most  prominent 
ends  of  political  action.  It  is  not,  indeed,  desirable  if 
obtained  by  a  loss  of  net  revenue,  but  only  when  the  net 
revenue  remains  the  same  or  is  in  some  degree  increased. 
But,  as  I  have  shown,  protection  certainly  increases  the 
net  national  revenue  of  an  agricultural  nation  as  well  as 
its  population,  and  under  such  circumstances  the  increase 
of  the  latter  is  wholly  beneficial,  and  an  addition  to  the 
motives  for  the  adoption  of  a  protective  policy  not  here- 
tofore noticed. 

The  immediate  effect  of  the  adoption  of  a  protective 
policy  by  an  agricultural  country  is  to  raise  its  own  mar- 
gin of  cultivation  and  depress  the  margin  of  the  manu- 
facturing nations  with  which  it  formerly  traded.  As 
long  as  population  remains  stationary  the  margins  can  not 
approach,  nor  will  they  if  the  increase  be  mutual  and 
equal,  or  rather  in  proportion  to  the  fertility  of  the  un- 
occupied land.  But  the  higher  rate  of  real  wages  in  the 
agricultural  country  will  act  as  a  powerful  stimulus  to 
population,  and  the  lowered  rate  in  the  manufacturing  as 
a  powerful  deterrent.  Nevertheless,  the  two  margins  will 
never  become  identical  if  the  laborers  in  the  country  with 
the  higher  margin  ultimately  refuse  to  adopt  as  low  a 
standard  of  life  as  the  laborers  in  the  manufacturing 
country.  This  they  would  probably  do,  and,  as  laborers 
are  more  unwiUing  to  descend  from,  than  eager  to  rise 
above,  their  previous  standard,  the  ultimate  equilibrium 
of  margin  will  more  nearly  approach  uniformity  than 
under  free  trade. 

But  the  difference  in  margins  will  tend  to  adjust  the 


EFFECTS   OF  FREE   TRADE  AND  PROTECTION.    231 

population  in  another  way.  The  greater  it  is,  the  greater 
stimulus  it  will  afford  to  emigration.  A  protected  coun- 
try will  inevitably  draw  to  its  shores  a  greater  number  of 
immigrants  than  before,  not  only  because  it  can  offer 
them  a  substantial  increase  in  their  real  wages,  but  be- 
cause it  can  offer  them  a  greater  variety  of  employment. 
This  will  also  enable  it  to  attract  a  better  class  of  work- 
men, those  accustomed  to  earn  and  receive  a  higher  than 
the  average  wages.  A  skilled  artisan  who  emigrates  to 
an  unprotected  country  can  only  expect  to  be  employed 
there  as  a  common  laborer.  The  inducement  to  leave  his 
native  land  is  very  much  lessened,  and  he  will  not  come 
at  all  unless  the  wages  of  common  labor  in  such  country 
are  greater  than  the  wages  which  his  skilled  labor  com- 
mands in  his  own. 

Protection  no  more  than  free  trade  secures,  when  the 
final  equilibrium  is  reached,  a  uniform  and  universal  mar- 
gin of  cultivation,  and  does  not  therefore  finally  affect  a 
distribution  of  population  among  nations  in  exact  propor- 
tion to  their  extent  and  fertility,  but  it  does  this  latter  to 
a  much  greater  degree  than  free  trade,  and  does  it  more 
quickly.  When  the  margins  have  approached  each  other 
to  the  same  degree  as  under  free  trade,  the  disparity  in 
population  will  not  indeed  be  entirely  overcome,  but  it 
will  be  very  much  less  than  if  a  protective  policy  had  not 
been  adopted.  Under  protection  the  disparity  will  be  in 
exact  or  nearly  exact  proportion  to  the  difference  in  the 
margins.  Under  free  trade  this  will  be  only  true  of  the 
agricultural  population.  The  sterile  and  over-populated 
country  will  have  in  proportion  to  its  fertility,  besides  its 
somewhat  greater  agricultural  population,  a  very  much 
larger  manufacturing  population.  This  will  involve  in 
the  ultimate  state  a  very  great  increase  in  the  cost  of 


232  CAPITAL  AND  POPULATION. 

carriage  between  countries,  and  is  far  from  being  to  the 
world  as  beneficial  as  the  more  equal  distribution  of  pop- 
ulation effected  by  protection.  Protection  will  not,  in- 
deed, wholly  remove  in  the  ultimate  state  the  relative 
disadvantage  of  agricultural  nations  in  engaging  in  the 
most  advantageous  employments,  but  it  will  lessen  it 
more  than  the  policy  of  free-  trade. 

The  ultimate  state  under  protection  is,  therefore,  in 
several  ways  more  desirable  than  that  arrived  at  under 
free  trade,  and  will  be  sooner  reached.  The  price  paid 
for  this  result  is  a  present  loss  in  the  efficiency  of  the 
labor  of  the  world.  Whether  the  result  is  fully  worth 
the  price  can  not  perhaps  well  be  determined,  but  that  it  is 
worth  a  large  part  of  it  can  not  surely  be  denied.  To 
whatever  extent  it  is  an  equivalent,  it  morally  justifies 
the  adoption  of  the  policy  by  agricultural  nations.  It 
must  be  noticed,  also,  that  the  loss  in  eflSciency  is  a  con- 
stantly declining  one,  and  grows  less  exactly  in  proportion 
to  the  more  equal  distribution  of  population.  And  where 
such  distribution  is  fully  effected,  the  loss  is  turned  into  a 
gain,  the  efficiency  of  labor  being  then  greater  by  what- 
ever saving  is  effected  in  cost  of  carriage  and  dead  stock. 

We  have  yet  to  consider  whether  the  ultimate  uniform 
or  average  margin  of  cultivation  will  be  higher  or  lower 
if  agricultural  nations  generally  adopt  the  policy  of  pro- 
tection. Although  the  determination  of  this  point  would 
more  powerfully  affect  our  decision  as  to  the  morality  of 
protection  than  any  of  the  results  we  have  considered,  I 
do  not  see  how  it  can  be  arrived  at.  Whether  the  mar- 
gin shall  be  high  or  low  depends  mainly  upon  moral  and 
social  causes,  and  is  only  dependent  upon  economic  causes 
in  so  far  as  they  act  upon  the  moral  and  intellectual  status 
of  the  population.     I  confess  myself  unable  to  see  any 


EFFECTS  OF  FREE   TRADE  AND  PROTECTION.     233 

effect  upon  the  morality  or  intelligence  of  the  laboring 
classes  of  the  world  at  large  that  can  with  certainty  or 
even  probability  be  attributed  to  either  free  trade  or  pro- 
tection, except  that  the  latter  causes  those  nations  in 
which  the  position  of  the  laborer  is  the  highest  to  become 
wealthier  and  more  powerful,  while  the  former  gives 
power  and  influence  to  those  in  which  the  position  of  the 
laborer  is  the  lowest.  This  effect,  however,  I  can  not 
but  regard  as  very  important,  and  practically  decisive  of 
the  question  at  issue. 

The  authority  of  Mill  in  the  following  passage  would 
seem  to  be  in  favor  of  the  morality  of  protection,  judged 
by  the  standards  here  set  forth.  He  says,  in  Book  III, 
chapter  xvii,  section  3  : 

'*  It  is  possible  that  one  of  the  two  coiintriea  may  be  altogether 
inferior  to  the  other  in  productive  capacities,  and  that  its  labor  and 
capital  could  be  employed  to  greatest  advantage  by  being  removed 
bodily  to  the  other.  The  labor  and  capital  which  have  been  sunk 
in  rendering  Holland  habitable,  would  have  produced  a  much  greater 
return  if  transported  to  America  or  Ireland.  The  produce  of  the 
whole  world  w^ould  be  greater,  or  the  labor  less,  than  it  is,  if  every- 
thing were  produced  where  there  is  the  greatest  absolute  facility 
for  its  production.  But  nations  do  not,  at  least  in  modern  times, 
emigrate  en  masse;  and  while  the  labor  and  capital  of  a  country 
remain  in  the  country,  they  are  most  beneficially  employed  in  pro- 
ducing, for  foreign  markets  as  well  as  for  its  own,  the  things  in 
which  it  lies  under  the  least  disadvantage,  if  there  be  none  in  which 
it  possesses  an  advantage." 

Ricardo  also,  iu  his  chapter  on  "  Foreign  Trades,"  page 
77,  takes  the  same  view.  Of  course,  neither  of  them  rec- 
ognize or  could  well  recognize,  holding  the  views  they  did 
as  to  the  nature  of  capital,  that  protection  tended  to  the 
readjustment  of  labor  and  capital  they  recognized  as  most 
beneficial.     They  both  reason  as  if  labor  and  capital,  es- 


234  CAPITAL  AND  POPULATION". 

pecially  the  latter,  could  only  be  transferred  by  actual 
emigration,  whereas  this  operates  but  to  a  very  limited 
extent.  The  real  and  effectual  method  of  transfer  from 
one  nation  to  another  is,  as  to  capital,  its  decline  in  one 
country  and  increase  in  another,  due  to  a  change  in  their 
relative  rate  of  profit,  and  as  to  labor  the  restraint  or 
stimulus  to  population  due  to  a  change  in  their  relative 
margin  of  cultivation.  They  seem  to  regard  both  capital 
and  population,  once  acquired,  in  the  light  of  natural  in- 
stead of  artificial  advantages,  and  never  to  have  contem- 
plated their  readjustments  as  possible  in  the  manner  I 
have  indicated,  although  that  is  the  manner  by  which  the 
readjustment  is  mainly  effected. 

Emigration,  even  when  the  emigrant  is  empty-handed, 
causes  of  itself  a  transfer  of  capital  from  the  mother  to 
the  adopted  country.  By  lessening  the  supply  of  labor 
it  raises  proportional  wages  and  lessens  production  and 
accumulation  in  the  former,  and  by  increasing  the  supply 
of  labor  it  produces  the  contrary  effect  in  the  latter.  It 
makes  but  little,  and  that  only  a  temporary  difference, 
whether  or  no  immigrants  bring  with  them  the  capital 
necessary  to  their  employment.  Their  presence  alone, 
whatever  their  poverty,  allows  of  the  creation  of  just  the 
amount  of  capital  which  their  labor  can  utilize,  and  very 
soon  their  adopted  country  is  as  rich  as  economic  law  al- 
lows, and  she  can  be  no  richer,  however  much  wealth  is 
transferred  bodily  to  her  from  other  lands. 


CHAPTER  XYL 


TAXATION. 


The  recognition  of  the  tendency  of  capital  to  outstrip 
population,  not  only  affords  a  principle  by  which  inter- 
course with  foreign  nations  should  be  regulated,  but  also 
assists  in  determining  the  policy  that  should  be  pursued 
in  the  internal  affairs  of  a  people,  especially  in  so  far  as 
such  internal  affairs  relate  to  taxation.  If  there  is  a  ten- 
dency for  accumulation,  carried  beyond  a  certain  and  fre- 
quently recuiTing  point,  to  lessen  production,  the  effect  of 
such  tendency  can  certainly  be  largely  counteracted  by  a 
judicious  fiscal  system.  This  being  so,  the  principle  that 
as  far  as  possible  taxes  should  come  from  accumulations, 
and  not  from  wages,  profits,  or  unproductive  consumption, 
is  surely  as  important  as  any  of  the  justly  celebrated 
principles  enunciated  by  Adam  Smith. 

All  direct  taxation  of  profits  as  such,  or  indirect 
through  wages  or  upon  unproductive  consumption,  to 
such  degree  or  in  such  manner  as  leads  to  a  decrease  in 
the  value  unproductively  consumed  by  the  government 
and  the  community  combined,  lessens  the  productive  ca- 
pacity of  the  nation,  it  may  be,  by  an  amount  far  greater 
than  that  of  the  tax  itself.  It  has  hitherto  been  held 
that  taxes  that  lowered  the  rate  of  profit  acted  injuriously 
only  as  they  lessened  the  amount  of  the  sum  from  which 


236  CAPITAL  AND  POPULATION. 

accumulations  could  continue  to  be  made.  But  we  have 
seen  tliat  sucli  accumulations  would  have  gone  first  to  in- 
crease the  dead  stock  or  idle  capital,  and  that  the  amount 
of  active  stock  or  utilized  capital,  other  things  being 
equal,  varies  inversely  with  the  amount  of  dead  stock. 
This  effect,  therefore,  would  lead  to  an  increased  rather 
than  a  decreased  annual  production.  Such  a  tax  is,  in 
fact,  rarely  or  never  followed  by  an  increased  production, 
but  it  is  not  because  of  the  consequent  decrease  of  capi- 
tal stock,  active  and  passive  together,  but  because  the  de- 
crease in  the  rate  of  profit  has  lessened  the  amount  of 
capital  that  can  be  productively  employed.  It  has  de- 
creased the  normal  ratio  of  active  to  dead  stock,  and  the 
failure  to  accumulate  further  only  partially  counteracts 
the  consequent  disproportion  between  them. 

In  countries  where  population  tends  to  outstrip  capi- 
tal, a  tax  on  profits  does,  indeed,  discourage  production, 
as  well  by  the  consequent  decrease  in  capital  as  by  the 
accompanying  decrease  in  the  rate  of  profit ;  but  where 
the  tendency  is  the  other  way,  the  first  result,  instead  of 
intensifying,  counteracts  the  second,  and  finally  readjusts 
the  equilibrium  of  active  to  dead  stock  to  a  new  and 
lower  ratio. 

Taxes,  on  the  other  hand,  that  are  paid  wholly  from 
funds  that  would  otherwise  have  been  added  to  capital, 
provided,  of  course,  they  are  not  so  great  as  to  cause  the 
increase  of  capital  to  lag  behind  that  of  population,  are 
met  entirely  by  an  increase  of  production.  If  such  taxes 
had  not  been  levied,  the  same  amount  of  production 
might  have  gone  on  for  a  while ;  but  the  resulting  ac- 
cumulations would  have  been  added  to  dead  stock,  and 
been  followed  very  soon  by  a  decrease  in  the  amount  of 
stock  productively  employed,  and  the  total  production 


TAXATION. 


:si 


would  have  eventually  been  lessened.  The  normal  ratio 
between  dead  and  active  stock  can  only  be  readjusted 
by  a  decrease  of  production,  or  by  an  increase  of  un- 
productive consumption.  A  tax  drawn  wholly  from 
accumulations,  being  really  an  increase  of  unproductive 
consumption,  adjusts  it  in  the  latter,  and  much  the  more 
advantageous,  way.  When  such  a  tax  is  wisely  expended 
it  is  an  unmixed  advantage  to  the  nation,  and  even  when 
unwisely  used  it  is  of  no  positive  disadvantage. 

We  are  entitled,  then,  to  lay  it  down,  not  only  as  a, 
but  as  the,  fundamental  pHnciple  of  taxation,  that  it 
should  come  as  far  as  possible  from  funds  that  would 
otherwise  be  added  to  capital ;  but  in  effecting  this  it 
must  be  done  without  affecting  the  rate  of  profit,  as  the 
effect  of  lowering  that  will  overbalance  the  advantage  of 
lessening  accumulations. 

To  reach  this  fund,  from  which  taxation  should 
wholly  come,  is  a  very  difficult  matter,  because  every 
individual  on  whom  taxation  falls  seeks  to  meet  it,  not 
from  the  funds  he  is  accustomed  or  desirous  of  adding 
to  his  capital,  but  from  those  he  devotes  to  unproduc- 
tive consumption.  Personal  interests  here  are  in  direct 
conflict  with  social,  with  the  result  that  a  theoretically 
perfect  system  of  taxation  is  impossible  of  attainment, 
especially  as  the  tax  which  comes  nearest  in  principle  to 
the  correct  one,  and  from  which  any  considerable  revenue 
can  be  raised,  is  open  to  very  serious  moral  objections, 
and  to  most  minds  seems  to  discriminate  very  unjustly 
between  individuals.  I  refer,  of  course,  to  a  graduated 
income-tax.  A  tax  upon  incomes  strictly  proportional 
is  a  tax  upon  profits,  and  therefore"  objectionable.  In  so 
far  as  it  is  a  tax  upon  wages,  unless  indeed  they  are  ex- 
ceptionally high,  it  is,  of  course,  transferred  eventually 


238  CAPITAL  AJTD  POPULATION. 

to  profits,  and  can  not  but  result  in  a  decrease  of  pro- 
duction ;  but,  where  small  incomes  are  wholly  exempt, 
and  moderate  incomes  but  lightly  taxed,  the  weight  of 
the  tax  falls  almost  wholly  upon  the  accumulating  class, 
and  that  very  nearly  in  proportion  to  their  ability  and 
willingness  to  accumulate.  This  has  hitherto  been  ad- 
vanced as  a  fatal  objection  to  such  a  tax  both  economic- 
ally and  morally.  We  have  seen  that  economically  it  is 
not  unwise,  but,  on  the  contrary,  most  beneficial  to  the 
interests  of  the  community  at  large,  and  it  is  certainly 
just  and  right  that  the  class  whose  advancement  of  their 
individual  interest  most  conflicts  with  the  interests  of 
society  should  be  called  upon  to  bear  very  much  more 
of  the  public  burdens  than  would  otherwise  fall  to  them, 
especially  when  their  so  doing  will  partially,  and  may 
even  wholly,  obliterate  the  injurious  effects  to  others  of 
their  hitherto  too  rapid  growth  in  wealth,  and  that  with- 
out any  diminution,  but  rather  to  the  increase,  of  their 
wealth  as  a  class,  although  the  distribution  of  their  wealth 
among  themselves  will  be  affected.  Anything  that  in- 
creases the  average  annual  production  increases  in  some 
proportion  the  capital  that  can  be  utilized,  and  conse- 
quently the  amount  that  can  be  accumulated ;  and  that 
capital  should  be  more  equally  distributed  has  long  been 
recognized  as  a  desirable  social  change.  The  objections 
to  a  graduated  income-tax  are  therefore  reduced  solely 
to  its  inquisitorial  nature,  and  to  the  deceit  and  perjury 
consequent  upon  the  conflict  of  individual  and  social 
interests.  Great  as  these  objections  are,  they  do  not 
seem  insuperable  when  the  economic  action  of  such  a 
tax  is  considered. 

A  legacy-tax,  graduated  or  not,  but  better  if  gradu- 
ated, also  meets  the  conditions  of  the  principle  that  taxa- 


TAXATION.  239 

tion  should  be  drawn  from  accumulations,  and  is  not  open 
to  the  same  moral  objections.  A  tax  upon  gifts  above  a 
certain  amount  would  not  only  be  economically  advisable, 
but  probably  necessary,  to  prevent  evasions  of  taxes  upon 
legacies  and  inheritances,  and  also,  perhaps,  upon  income. 
In  the  following  passage  from  Mill,  Book  Y,  chapter 
ii,  section  7,  it  would  certainly  seem  that  he  fully  in- 
dorses the  views  here  advanced.  I  am  unable  to  put  any 
construction  on  his  language  other  than  that  he  means  to 
assert  that,  in  England  at  least,  capital  so  presses  upon 
population  that  taxes  on  capital  are  fully  paid  by  a  saving 
of  the  waste  of  capital  that  would  else  occur ;  nor  am  I 
able  to  imagine  any  more  complete  admission  than  this, 
that  over-accumulation  is  not  only  possible,  but  an  event 
of  frequent  and  periodical  occurrence,  in  civilized  com- 
munities. Mill,  indeed,  did  not  perceive  that  over-accu- 
mulations are  not  only  necessarily  wasted,  but  that  they 
involve  a  partial  cessation  of  industry  while  such  waste  is 
taking  place  and  until  it  is  accomplished.  Other  than 
this  last  particular  his  views  certainly  seem  to  coincide 
with  mine.     The  passage  reads  : 

"All  taxes,  therefore,  are  in  some  sense  partly  paid  out  of  capi- 
tal ;  and  in  a  poor  country  it  is  impossible  to  impose  any  tax  which 
will  not  impede  the  increase  of  the  national  wealth.  But  in  a  coun- 
try where  capital  abounds  and  the  spirit  of  accumulation  is  strong, 
this  effect  of  taxation  is  scarcely  felt.  Capital  having  reached  the 
stage  in  which,  were  it  not  for  a  perpetual  succession  of  improve- 
ments in  production,  any  further  increase  would  soon  be  stopped, 
and  having  so  strong  a  tendency  even  to  outrun  those  improvements, 
that  profits  are  only  kept  above  the  minimum  by  emigration  of  cap- 
ital, or  by  a  periodical  sweep  called  a  commercial  crisis — to  take 
from  capital  by  taxation  what  emigration  would  remove  or  a  com- 
mercial crisis  destroy,  is  only  to  do  what  either  of  those  causes 
would  have  done,  namely,  to  make  a  clear  space  for  further  saving. 

"  I  can  not,  therefore,  attach  any  importance,  in  a  wealthy  coun- 
11 


240  CAPITAL  AND  POPULATION. 

try,  to  the  objection  made  against  taxes  on  legacies  and  inheritances, 
that  they  are  taxes  on  capital.  It  is  perfectly  true  that  they  are  so. 
As  Ricardo  observes,  if  £100  are  taken  from  any  one  in  a  tax  on 
houses  or  on  wine,  he  will  probably  save  it,  or  a  part  of  it,  by  living 
in  a  cheaper  house,  consuming  less  wine,  or  retrenching  from  some 
other  of  his  expenses ;  but  if  the  same  sum  be  taken  from  him  be- 
cause he  has  received  a  legacy  of  £1,000,  he  considers  the  legacy  as 
only  £900,  and  feels  no  more  inducement  than  at  any  other  time 
(probably  feels  rather  less  inducement)  to  economize  in  his  expend- 
iture. The  tax,  therefore,  is  wholly  paid  out  of  capital ;  and  there 
are  countries  in  which  this  would  be  a  serious  objection.  But,  in 
the  first  place,  the  argument  can  not  apply  to  any  country  which 
has  a  national  debt,  and  devotes  any  portion  of  revenue  to  paying  it 
off;  since  the  produce  of  the  tax,  thus  applied,  still  remains  capital, 
and  is  merely  transferred  from  the  tax-payer  to  the  fund-holder. 
But  the  objection  is  never  applicable  in  a  country  which  increases 
rapidly  in  wealth.  The  amount  which  would  be  derived,  even  from 
a  very  high  legacy-duty  in  each  year,  is  but  a  small  fraction  of  the 
annual  increase  of  capital  in  such  a  country ;  and  its  abstraction 
would  but  make  room  for  saving  to  an  equivalent  amount ;  while 
the  effect  of  not  taking  it,  is  to  prevent  that  amount  of  saving,  or 
cause  the  savings,  when  made,  to  be  sent  abroad  for  investment.  A 
country  which,  like  England,  accumulates  capital  not  only  for  itself 
but  for  half  the  world,  may  be  said  to  defray  the  whole  of  its  public 
expenses  from  its  overflowings ;  and  its  wealth  is  probably  at  this 
moment  as  great  as  if  it  had  no  taxes  at  all.  What  its  taxes  really 
do  is  to  subtract  from  its  means  not  of  production  but  of  enjoy- 
ment ;  since  whatever  any  one  pays  in  taxes  he  could,  if  it  were  not 
taken  for  that  purpose,  employ  in  indulging  his  ease  or  in  gratifying 
some  want  or  taste  which  at  present  remains  unsatisfied." 

If  Mill  had  borne  in  mind  and  fully  considered  the 
above  words  and  all  that  they  imply,  he  could  hardly 
have  expressed  himself  as  he  does  later  on  in  Book  Y, 
chapter  ii,  section  3,  in  which  he  says  : 

"Both  in  England  and  on  the  Continent  a  graduated  property- 
tax  has  been  advocated  on  the  avowed  ground  that  the  state  should 
use  the  instrument  of  taxation  as  a  means  of  mitigating  the  inequal- 


TAXATIOK  241 

ities  of  wealth.  I  am  as  desirous  as  any  one  that  means  should  be 
taken  to  dimmish  those  inequalities,  but  not  so  as  to  relieve  the 
prodigal  at  the  expense  of  the  prudent.  To  tax  the  larger  incomes 
at  a  MgJier  percentage  than  the  smaller^  is  to  lay  a  tax  on  indnstri/ 
and  economy  ;  to  impose  a  penalty  on  people  for  hating  worTced 
harder  and  saved  more  than  their  neighbors.  It  is  not  the  fortunes 
which  are  earned^  tut  those  which  are  unearned^  that  it  is  for  the 
public  good  to  place  under  limitation.  A  just  and  wise  legislation 
would  abstain  from  holding  out  motives  for  dissipating  rather  than 
saving  the  earnings  of  honest  exertion.  Its  impartiality  between 
competitors  would  consist  in  endeavoring  that  they  should  all  start 
fair,  and  not  in  hanging  a  weight  upon  the  swift  to  diminish  the 
distance  between  them  and  the  slow.  Many,  indeed,  fail  with 
greater  efforts  than  those  with  which  others  succeed,  not  from  dif- 
ference of  merits  but  difference  of  opportunities ;  but  if  all  were 
done  which  it  would  be  in  the  power  of  a  good  government  to  do, 
by  instruction  and  by  legislation,  to  diminish  this  inequality  of  op- 
portunities, the  difference  of  fortune  arising  from  people's  own  earn- 
ings could  not  justly  give  umbrage.  With  respect  to  the  large  for- 
tunes acquired  by  gift  or  inheritance,  the  power  of  bequeathing  is 
one  of  those  privileges  of  propercy  which  are  fit  subjects  for  regu- 
lation on  grounds  of  general  expediency ;  and  I  have  already  sug- 
gested, as  a  possible  mode  of  restraining  the  accumulation  of  large 
fortunes  in  the  hands  of  those  who  have  not  earned  them  by  exer- 
tion, a  limitation  of  the  amount  which  any  one  person  should  be 
permitted  to  acquire  by  gift,  bequest,  or  inheritance.  Apart  from 
this,  and  from  the  proposal  of  Bentham  (also  discussed  in  a  former 
chapter),*  that  collateral  inheritance  in  case  of  intestacy  should 
cease  and  the  property  escheat  to  the  state,  I  conceive  that  inherit- 
ances and  legacies,  exceeding  a  certain  amount,  are  highly  proper 
subjects  for  taxation,  and  that  the  revenue  from  them  should  be  as 
great  as  it  can  be  made  without  giving  rise  to  evasions,  by  donation 
during  life  or  concealment  of  property  such  as  it  would  be  impos- 
sible adequately  to  check.  The  principle  of  graduation  (as  it  is 
called),  that  is,  of  levying  a  larger  percentage  on  a  larger  sum, 
though  its  application  to  general  taxation  would  be  in  my  opinion 
objectionable,  seems  to  me  both  just  and  expedient  as  applied  to 
legacy  and  inheritance  duties." 

*  Supra^  Book  II,  chapter  ii. 


2J:2  CAPITAL  AND  POPULATION. 

In  one  passage  lie  objects  to  a  tax,  in  that  it  tends  to 
discourage  accumulation  ;  and  in  the  other  he  rebuts  the 
same  objection  against  another  tax,  on  the  ground  that 
such  accumulations  will  inevitably  be  wasted.  But  there 
are  not  the  moral  objections  he  urges  to  a  graduated  tax 
upon  property  and  incomes,  or  upon  inheritances,  legacies, 
and  gifts.  The  tendency  of  such  taxes  is  to  discourage 
accumulation,  which,  if  not  carried  too  far,  is  an  unmixed 
benefit.  Their  imposition  tends  not  only  to  a  more  equal 
distribution  of  wealth,  but  also  to  the  prolongation  of 
the  periods  of  large  productiveness.  As  great  accumu- 
lations take  away  from  the  poorer  members  of  a  commu- 
nity something  of  their  ability  to  themselves  accumulate, 
it  certainly  seems  just  that  those  whom  society  protects 
in  inflicting  an  injury  upon  itself  should  be  called  upon 
to  support  more  than  their  share,  if  not  all,  of  the  public 
burdens.  There  is  one  peculiar  advantage  possessed  by 
such  a  tax  which  should  be  noticed,  viz.,  that  the  com- 
munity, including  those  who  pay  it,  will  be  richer  instead 
of  poorer  by  it,  even  if  the  proceeds  of  the  tax  be  wasted. 
The  increase  of  industry  to  which  it  leads  will  add  more 
to  the  general  income  than  the  tax  itself  will  subtract 
from  it,  because  only  a  part  of  such  increased  produc- 
tion will  be  added  to  savings,  while  the  tax  is  wholly  a 
deduction  from  past  accumulations.  The  conditions, 
therefore,  favorable  to  a  large  production  will  be  pro- 
longed. 

In  his  discussion  of  the  income-tax,  which  follows  the 
passage  we  have  quoted,  Mill  argues  in  favor  of  exempt- 
ing such  a  proportion  of  life-incomes  from  taxation  as 
would  probably  be  saved.  This  would  indeed  be  a  bene- 
fit to  the  families  of  annuitants,  as  it  would  help  to  pro- 
vide for  them  after  the  death  of  the  annuitant,  but  its 


TAXATION.  243 

effect  upon  accumulation  would  be  against  the  interest  of 
the  public,  instead  of  in  favor  of  it,  as  Mill  supposes. 

Taxes  upon  rental  also  meet  economic  conditions,  as 
the  unproductive  consumption  of  the  government  exactly 
takes  the  place  of  the  lessened  unproductive  consumption 
of  the  landlords,  and  therefore,  while  lessening  accumula- 
tion, they  do  not  otherwise  affect  the  rate  of  profit.  Mr. 
Henry  George  seems  to  think  that  a  sum  could  be  derived 
from  this  source  sufficient,  not  only  to  meet  all  the  ex- 
penses of  government,  but  to  allow  a  vastly  increased  ex- 
penditure by  government  for  social  improvement.  That 
a  large  sum  could  be  so  derived  admits  of  no  doubt,  but 
that  Mr.  George  considerably  exaggerates  the  amount  is 
also  evident.  Economic  rent  is  but  a  small  portion  of 
what  is  ordinarily  called  rent.  A  tax  upon  aggregate  rent 
would  be  mainly  a  tax  upon  profits,  and  would  discourage 
agricultural  and  urban  improvement,  nor  do  I  understand 
Mr.  George  to  advocate  it ;  but  the  rent  of  agricultural 
land  is  very  largely  composed  of  the  profits  due  to  the 
improvements  upon  it.  It  is  only  of  town-lots  and  villa- 
sites  that  economic  rent  furnishes  a  large  proportion  of 
the  rental  in  the  popular  sense  of  the  word.  If,  however, 
the  whole  of  economic  rents  were  reappropriated  by  so- 
ciety, it  would  undoubtedly  afford  a  revenue,  which  would 
obviate  any  necessity  of  taxing  profits  in  any  way  or 
shape,  and  the  economic  advantages  resulting  from  this 
would  be  very  great.  I  agree  with  Mr.  George  that  so- 
ciety would  be  justified  in  resuming  its  right  to  the  entire 
economic  rental  of  its  land,  but  can  not  regard  his  pro- 
posal to  do  so  immediately  and  without  compensation  as 
anything  but  the  most  arbitrary  confiscation.  Society 
has  parted  with  its  rights  in  the  premises  for  valuable 
though  inadequate  compensation,  and  though  we  may 


24A  CAPITAL  AND  POPULATION. 

allow  that  one  generation  can  not  grant  rights  of  this 
character  belonging  to  its  successors,  it  certainly  can, 
if  it  chooses,  part  with  its  own.  Immediate  resumption 
of  economic  rentals  without  full  compensation  would 
therefore  be  most  unjust,  and  the  violation  of  an  implied 
contract.  More,  however,  can  be  said  in  favor  of  a  grad- 
ual resumption  without  compensation.  The  past  and  the 
present  rights  are  gone.  However  inadequate  the  price, 
the  bargain  has  been  made  and  must  be  adhered  to,  but 
the  grant  may  be  held  void  as  to  the  generation  coming 
into  being,  and  there  would  be  no  injustice  in  a  law  re- 
suming the  proprietary  right  to  the  rental  of  each  future 
year,  in  proportion  to  the  ratio  of  the  inhabitants  of  the 
country  born  after  its  passage  to  those  born  before.  Such 
a  gradual  resumption  would  work  neither  hardshi]3  nor 
injustice,  and  would  in  time  attain  for  us  all  the  advan- 
tages that  a  sudden  and  unjust  resumption  could  do,  and 
that  without  the  shock  to  society  that  would  follow  a 
sudden  resumption  with  or  without  compensation. 

Mr.  George  entirely  miscalculates  the  effect  upon 
"  progress  and  poverty  "  that  would  follow  the  resump- 
tion of  economic  rent  by  the  government.  It  would 
make  no  difference  in  the  price  of  food  or  of  manufact- 
ured articles  whether  the  farmer  and  the  manufacturer 
paid  the  rental  to  the  government,  to  the  landlords,  or  to 
themselves  as  landlords.  The  sole  relief  that  would  ac- 
crue would  be  the  consequent  relief  from  other  taxation. 
But  the  laborer  is  not,  indeed  can  not  be,  taxed  ;  at  first, 
probably,  he  would  reap  some  benefit  as  a  consumer  in  so 
far  as  taxation  is  an  element  of  cost ;  but  as  soon  as  popu- 
lation had  increased,  his  real  wages  would  be  the  same  as 
before,  and  the  whole  benefit  derived  from  the  decrease 
of  other  taxation  would  accrue  to  his  employers  by  ena- 


TAXATION.  245 

bling  them  to  utilize  a  larger  amount  of  capital.  The 
final  result  would  simply  be  a  transfer  from  landlords  to 
capitalists,  and  an  increase  in  the  inequality  of  individual 
fortunes. 

The  position  of  the  laborer  can  be  permanently  im- 
proved in  but  two  ways  :  first  and  mainly,  by  his  refrain- 
ing from  increasing  population ;  and,  secondly,  by  such  a 
readjustment  of  social  forces  as  shall  result  in  his  stead- 
ier and  more  efficient  employment. 

While  to  some  extent  agreeing  with  Mr.  George,  I 
can  not  therefore  look  hopefully  upon  his  proposed  expe- 
dient for  ameliorating  the  condition  of  laborers.  I  do 
not,  however,  despair  of  their  future  state,  because  I  see 
in  co-operation  the  solution,  and  the  only  final  solution, 
of  the  conflict  between  labor  and  capital.  "While  its  im- 
mediate success  can  not  be  expected,  because  it  presup- 
poses an  intelligence  and  morality  not  yet  attained  by  our 
lower  classes,  its  gradual  adoption  is  certain  to  take  place, 
small  as  is  the  foothold  it  has  yet  obtained,  because  it 
contains  within  itself  an  educative  principle  that  will 
eventually  supply  the  needed  intelligence  and  morality. 

Taxes  on  necessaries  can  not  but  lower  the  rate  of 
profit,  and  are  always  unwise.  Taxes  on  luxuries  may  or 
may  not  lower  the  rate  of  profit.  If  they  lead  to  an  in- 
crease in  the  value  of  what  is  unproductively  consumed, 
they  will  raise  and  sustain  the  rate,  and  will  act  benefi- 
cially. If  they  lead  to  a  decrease  of  unproductive  con- 
sumption, they  will  decrease  the  rate  of  profit,  and  wdll 
eventually  lessen  industrial  activity.  When  they  are 
laid  on  a  few  articles  and  are  excessive  in  amount,  they 
may  sometimes  do  the  latter,  but  when  laid  upon  many 
articles  their  operation  is  similar  to  that  of  a  graduated 
income-tax.     As  the  proportion  of  income  spent  in  luxu- 


246  CAPITAL  AND  POPULATION. 

ries  is  largest,  as  a  general  rule,  in  large  incomes,  such 
taxes  curtail  the  amount  of  the  funds  from  which  accu- 
mulations are  ordinarily  made,  and  lead  to  an  increase  of 
industrial  activity ;  but  they  are  much  inferior  in  their 
action  to  a  graduated  income-tax,  because  they  do  not 
operate  heavily  enough  against  the  large  incomes,  and 
because  many  of  the  rich  escape  their  due  proportion  of 
them  by  unduly  curtailing  their  expenditure.  These  are 
pre-eminently  the  accumulating  class,  and  the  one  that 
the  good  of  society  demands  should  be  most  heavily 
taxed.  But,  just  in  proportion  as  they  monopolize  the 
avenues  of  investment  to  the  exclusion  of  their  fellow- 
citizens,  for  which  privilege  they  should  certainly  be 
made  to  pay,  do  they  escape  the  taxes  upon  luxuries. 
The  special  advantage  of  taxing  luxuries  is  that,  as  in  the 
main,  luxurious  expenditure  increases  in  greater  propor- 
tion than  income,  it  is  really  a  slightly  graduated  tax  upon 
incomes.  If  such  taxes  are  relied  upon,  a  somewhat 
heavier  tax,  according  to  our  principles,  should  be  laid 
upon  the  excess  of  income  above  expenditure. 

Perhaps  no  better  test  of  the  correctness  of  the  prin- 
ciples advocated  in  this  work,  as  compared  with  Mill's 
views,  can  be  found  than  the  effect  produced  upon  a  na- 
tion's industry  by  its  engaging  in  war,  with  the  consequent 
increase  in  loans  and  taxes. 

To  obtain  Mill's  views  I  make  the  following  extract 
from  Book  Y,  chapter  vii,  section  1 : 

*'  Section  1.  The  question  must  now  be  considered  how  far  it  is 
right  or  expedient  to  raise  money  for  the  purposes  of  government, 
not  by  laying  on  taxes  to  the  amount  required,  but  by  taking  a  por- 
tion of  the  capital  of  the  country  in  the  form  of  a  loan  and  charg- 
ing the  public  revenue  with  only  the  interest.  Nothing  need  be 
said  about  providing  for  temporal  wants  by  taking  up  money ;  for 
instance,  by  an  issue  of  exchequer  bills,  destined  to  be  paid  off  at 


TAXATION.  247 

farthest  in  a  year  or  two,  from  the  proceeds  of  the  existing  taxes. 
This  is  a  convenient  expedient,  and,  when  the  government  does  not 
possess  a  treasure  or  hoard,  is  often  a  necessary  one,  on  the  occur- 
rence of  extraordinary  expenses,  or  of  a  temporary  failure  in  the 
ordinary  sources  of  revenue.  What  we  have  to  discuss  is  the  pro- 
priety of  contracting  a  national  debt  of  a  permanent  character; 
defraying  the  expenses  of  a  war  or  of  any  season  of  difficulty  by 
loans,  to  be  redeemed  either  very  gradually  and  at  a  distant  period, 
or  not  at  all. 

"  This  question  has  already  been  touched  upon  in  the  first  book.* 
We  remarked  that  if  the  capital  taken  in  loans  is  abstracted  from 
funds  either  engaged  in  production  or  destined  to  he  employed  in  it, 
their  diversion  from  that  purpose  is  equivalent  to  taking  the  amount 
from  the  wages  of  the  laboring  classes.  Borrowing,  in  this  case,  is 
not  a  substitute  for  raising  the  supplies  within  the  year.  A  govern- 
ment which  borrows  does  actually  take  the  amount  within  the  year^ 
and  that  too  hy  a  tax  exclusively  on  the  laboring  classes — than  which 
it  could  have  done  nothing  worse  if  it  had  supplied  its  wants  by 
avowed  taxation;  and  in  that  case  the  transaction  and  its  evils  would 
have  ended  with  the  emergen/^y  ;  while  by  the  circuitous  mode  adopted 
the  value  exacted  from  the  laborers  is  gained,  not  by  the  state,  but  by 
the  employers  of  labor,  the  state  remaining  charged  with  the  debt 
besides,  and  with  its  interests  in  perpetuity.  The  system  of  public 
loans,  in  such  circumstances,  may  be  pronounced  the  very  worst 
which,  in  the  present  state  of  civilization,  is  still  included  in  the 
catalogue  of  financial  expedients. 

"  We,  however,  remarked  that  there  are  other  circumstances  in 
which  loans  are  not  chargeable  with  these  pernicious  consequences, 
namely :  first,  when  what  is  borrowed  is  foreign  capital,  the  over- 
flowings of  the  general  accumulations  of  the  world ;  or,  secondly, 
when  it  is  capital  which  either  would  not  have  been  saved  at  all  un- 
less this  mode  of  investment  had  been  open  to  it,  or  after  being 
saved  would  have  been  wasted  in  unproductive  enterprises  or  sent 
to  seek  employment  in  foreign  countries.  When  the  progress  of 
accumulation  has  reduced  profits  either  to  the  ultimate  or  to  the 
practical  minimum — to  the  rate,  less  than  which  would  either  put  a 
stop  to  the  increase  of  capital,  or  send  the  whole  of  the  new  accu- 

*  Supra,  p.  49. 


2i8  CAPITAL  AND  POPULATION. 

mulations  abroad — government  may  annually  intercept  these  new 
accumulations  without  trenching  on  the  employment  or  wages  of 
the  laboring  classes  in  the  country  itself,  or  i)erhaps  in  any  other 
country.  To  this  extent,  therefore,  the  loan  system  may  be  carried 
without  being  liable  to  the  utter  and  peremptory  condemnation  which 
is  due  to  it  when  it  overpasses  this  limit.  What  is  wanted  is  an  in- 
dex to  determine  whether,  in  any  given  series  of  years,  as  during 
the  last  great  war,  for  example,  the  limit  has  been  exceeded  or  not." 

We  have  nothing  to  do  here  with  the  question  as  to 
the  advisability  of  loans,  but  with  the  assertion,  in  the 
sentences  italicized,  that  such  loans  are  entirely  at  the  ex- 
pense of  the  laboring  class,  if  they  raise  the  rate  of  profit 
and  depress  proportional  wages.  According  to  Mill,  when 
such  loans  are  made,  they  should  be  followed  by  some 
cessation  of  industry.  Is  this,  in  fact,  what  occurs  ?  Can 
it  be  denied  that  the  laboring  class  is  especially  prosper- 
ous under  such  circumstances  ?  Mill  himself  does  not 
attempt  to  deny  it,  but  endeavors  to  explain  it  away  in 
the  succeeding  paragraph.     He  says  : 

^^  Such  an  index  exists,  at  once  a  certain  and  obvious  one.  Did 
the  government  hy  its  loan  operations  augment  the  rate  of  interest  ? 
If  it  only  opened  a  channel  for  capital  which  would  not  otherwise 
have  been  accumulated,  or  which,  if  accumulated,  would  not  have 
been  employed  within  the  country,  this  implies  that  the  capital 
which  the  government  took  and  expended  could  not  have  found 
employment  at  the  existing  rate  of  interest.  So  long  as  the  loans 
do  no  more  than  absorb  this  surplus,  they  prevent  any  tendency  to  a 
fall  of  the  rate  of  interest,  but  they  can  not  occasion  any  rise. 
When  they  do  raise  the  rate  of  interest,  as  they  did  in  a  most  ex- 
traordinary degree  during  the  French  war,  this  is  positive  proof  that 
the  government  is  a  competitor  for  capital  with  the  ordinary  channels 
of  productive  investment,  and  is  carrying  off  not  merely  funds  which 
would  not,  but  funds  which  would  have  found  productive  employment 
within  the  country.  To  the  full  extent,  therefore,  to  which  the  loans 
of  government  during  the  war  caused  the  rate  of  interest  to  exceed 
what  it  was  before,  and  what  it  has  been  since,  those  loans  are  charge^ 


TAXATION.  249 

able  with  all  the  evils  which  have  been  described.  If  it  be  objected 
that  interest  only  rose  because  'profits  rose^  I  reply  that  this  does  not 
weaTcen  but  strengthens  the  argument.  If  the  government  loans 
produce  the  rise  of  profits  by  the  great  amount  of  capital  which 
they  absorb,  by  what  means  can  they  have  had  this  effect  unless 
by  lowering  the  wages  of  labor  ?  It  will  perhaps  be  said  that  what 
kept  profits  high  during  the  war  was  not  the  drafts  made  on  the 
national  capital  by  the  loans,  but  the  rapid  progress  of  industrial 
improvements.  This,  in  a  great  measure,  was  the  fact,  and  it  no 
doubt  alleviated  the  hardship  to  the  laboring  classes,  and  made  the 
financial  system  which  was  pursued  less  actively  mischievous,  but 
not  less  contrary  to  principle.  These  very  improvements  in  indus- 
try made  room  for  a  large  amount  of  capital ;  and  the  government, 
by  draining  away  a  great  part  of  the  annual  accumulations,  did  not 
indeed  prevent  that  capital  from  existing  ultimately  (for  it  started 
into  existence  with  great  rapidity  after  peace),  but  prevented  it 
from  existing  at  the  time,  and  subtracted  just  so  much  while  the 
war  lasted  from  distribution  among  productive  laborers.  If  the 
government  had  abstained  from  taking  this  capital  by  loan,  and  had 
allowed  it  to  reach  the  laborers,  but  had  raised  the  supplies  which 
it  required  by  a  direct  tax  on  the  laboring  classes,  it  would  have 
produced  (in  every  respect  but  the  expense  and  inconvenience  of  col- 
lecting the  tax)  the  very  same  economical  effects  which  it  did  pro- 
duce, except  that  we  should  not  now  have  had  the  debt.  The  course 
it  actually  took  was  therefore  worse  than  the  very  worst  mode  which 
it  could  possibly  have  adopted  of  raising  the  supplies  within  the 
year ;  and  the  only  excuse  or  Justification  which  it  admits  of  (so  far 
as  that  excuse  could  be  truly  pleaded)  was  hard  necessity — the  im- 
possibility of  raising  so  enormous  an  annual  sum  by  taxation,  without 
resorting  to  taxes  which,  from  their  odiousness  or  from  the  facility 
of  evasion,  it  would  have  been  found  impracticable  to  impose." 

This  explanation,  which,  of  course,  I  do  not  at  all  allow 
to  be  a  valid  one,  at  the  best  is  only  that  of  one  particular 
occurrence  of  the  fact  so  antagonistic  to  his  theories. 
How  lame  and  impotent  it  is,  is  apparent  when  it  is  re- 
membered that  an  increase  of  industrial  activity  always 
occurs  in  nations  while  at  war ;  and  the  higher  the  war 


250  CAPITAL  AM)  POPULATION. 

expenditures  and  loans  force  the  rate  of  interest  and  of 
profit,  provided,  of  course,  that  the  security  of  capital  is  not 
imperiled  by  invasion,  the  greater  the  industrial  activity 
whenever  the  drain  of  capital  is  greater  than  the  drain 
of  labor  to  the  army.  When  the  drain  of  the  latter  is  the 
greater,  the  contrary  effect  always  has  been  produced. 

The  reasoning  is  utterly  oblivious  of  the  fact  that  the 
benefit  which  the  laboring  class  receives  from  capital  is 
solely  from  such  portion  of  the  gross  capital  as  is  actively 
employed  in  production.  Dead  stock  can  not  be  convert- 
ed into  wages  until  it  becomes  active,  and  the  larger  the 
amount  of  dead  stock  the  less  the  temptation  to  capitalists 
to  employ  it  productively.  The  drain  upon  dead  stock 
made  by  the  government  loans  in  time  of  war,  even 
when  it  is  far  greater  than  what  would  carry  off  the 
sums  that  would  otherwise  be  loaned  abroad  or  consumed 
in  speculation,  is  of  great  and  immediate  advantage  to  the 
laborers.  Productive  consumption  is  vastly  increased, 
and  the  wages-fund  consequently  enlarged.  There  is  a 
fall  of  proportional  wages,  but  the  fall  of  proportional 
wages  is  more  than  made  up  to  the  laborers  by  more  of 
them  being  kept  busy.  This  accounts  for  what  has  hith- 
erto been  somewhat  of  a  puzzle  to  economists,  the  excep- 
tional prosperity  of  a  country  engaged  in  war,  and  the 
continuance  of  that  prosperity  after  the  war  is  closed, 
if  the  increased  industry  has  not  already  repaired  the 
breaches  which  the  war  expenditure  has  made  in  capital. 
The  advantage  to  labor  would  be  greater  if  it  were  not  for 
the  drain  upon  their  numbers  by  enlistment  and  draft. 
This  operates  as  a  counterbalance  to  the  drain  of  capital, 
and  if  it  equals  or  exceeds  it,  either  no  increase  or  a  de- 
crease of  industrial  activity  will  ensue,  because  it  will 
raise  wages  and  lessen  the  wages-fund. 


CHAPTEK  XVII. 

SOME   OTHER   EFFECTS   OF   THE   LAW. 

The  recognition  that  capital  is  limited  by  popula- 
tion and  tends  constantly  to  overpass  such  Hmit,  will 
go  far  toward  the  solution  of  many  other  eagerly-dis- 
cussed problems. 

The  effect  of  the  creation,  the  funding,  and  the  repay- 
ment of  national  indebtedness  upon  production  and  dis- 
tribution, is  such  a  problem.  Some  have  gone  so  far  as 
to  assert  a  national  debt  to  be  a  national  blessing ;  and  to 
a  certain  degree  the  assertion  can  be  sustained.  Besides 
the  national  securities  being  so  readily  negotiable  and  so 
satisfactory  as  collaterals,  that  their  presence  materially 
aids  the  efficiency  of  the  credit  system,  it  may  also  be 
affirmed  of  national  indebtedness  that,  in  so  far  as  its  cre- 
ation is  at  the  expense  of  superfluous  capital — i.  e.,  in  so 
far  as  it  only  appropriates  funds  whose  existence  would 
discourage  future  production — it  acts  as  a  stimulus  to  in- 
dustry, temporary  to  be  sure,  but  effective  and  beneficial 
as  long  as  it  lasts.  This  remark,  however,  only  applies  to 
such  part  of  the  debt  as  is  due  to  the  individuals  compos- 
ing the  indebted  nation.  What  a  government  borrows  of 
foreigners  fails  to  deplete  its  own  dead  stock,  and  conse- 
quently to  augment  its  own  rate  of  profit  and  its  industrial 


252  CAPITAL  AND  POPULATION. 

activity.  Such  loans  are  not  even  of  temporary  benefit  to 
industry,  unless  they  are  employed  productively  for  wise 
projects,  which  would  not  else  have  been  undertaken  at 
all.  They  are  only  justifiable  to  nations  whose  existence 
is  threatened,  or  who  are  in  need  of  great  internal  im- 
provements that  they  lack  means  to  provide  for  them- 
selves. But  so  far  as  a  nation's  loans  are  drawn  from  the 
funds  of  its  own  citizens,  their  first  effect  is  to  increase 
both  the  rate  and  the  sum  total  of  profits,  and  to  increase, 
though  in  a  somewhat  less  degree,  the  total  of  the  wages- 
fund  and  the  rate  of  real  wages. 

After  the  loans  are  completed  and  expended,  and 
after  capital  has  again  adjusted  itself  to  population,  this 
beneficial  effect  ceases,  and  national  indebtedness  becomes 
more  or  less  detrimental  to  production.  In  so  far  as  the 
consequent  taxation  adds  to  the  cost  of  production,  it  less- 
ens the  benefit  of  foreign  trade.  Though  this  is  a  serious 
loss,  it  is  so  well  recognized  a  result  of  national  indebted- 
ness that  it  does  not  demand  from  us  a  notice  adequate  to 
its  importanace,  and  its  consideration  need  not  further 
detain  us. 

Whatever  of  the  proceeds  of  taxation  is  returned  in  the 
form  of  interest  to  its  own  citizens,  does  not,  of  course, 
affect  the  net  income  of  the  nation,  and,  except  as  it 
stimulates  accumulation,  has  no  influence  upon  produc- 
tion. "Whatever  is  so  paid  to  foreigners  is,  on  the  other 
hand,  altogether  at  the  expense  of  the  net  national  in- 
come, and  can  not  but  result  in  a  total  loss,  except  as  it 
is  counterbalanced  by  benefits  still  enjoyed  through  the 
employment  of  the  original  loan  in  projects  for  which 
the  national  capital  was  insufficient.  Whatever  this  loss 
of  net  income,  the  gross  annual  product  of  the  indebted 
nation  need  not  be  decreased,  provided  the  consequent 


SOME  OTHER  EFFECTS  OF  THE  LAW.  253 

loss  of  revenue  is  not  so  great  as  to  forbid  the  accumu- 
lations necessary  for  its  wages  -  fund  and  fixed  capital. 
When  payments  of  interest  or  other  remittances  to  for- 
eigners (such,  for  Instance,  as  tribute  or  for  funds  ex- 
pended by  absentees)  are  so  great,  as  is  the  case  with  Ire- 
land, India,  and  a  few  other  unfortunate  lands,  that  they 
cause  population  to  press  upon  capital,  not  only  is  the  net 
revenue  of  such  a  people  reduced,  but  the  gross  product 
as  well. 

That  foreign  indebtedness  need  not  decrease  the  gross 
product  of  a  nation  is,  however,  only  true  of  its  amount, 
and  not  of  its  value.  As  has  been  ably  shown  by  Mill, 
the  equation  of  international  demand  is  always  disas- 
trously affected,  to  a  creditor  nation,  by  its  remittances 
on  account  of  absentees,  tribute,  loans,  interest,  or  profits. 
The  value  of  its  gross  product  can  not  but  diminish,  al- 
though its  amount  may  not  do  so  as  long  as  its  population 
remains  the  same,  and  its  capital  is  not  too  much  depleted 
or  supplanted.  But  the  effect  of  this  national  loss  in 
depressing  real  wages,  by  lessening  the  stimulus  to 
population,  will  finally  lead  to  a  decrease  of  the  gross 
produc  t  also,  at  least  relatively  to  what  it  might  have 
been,  if  such  foreign  indebtedness  had  never  been  in- 
curred. 

Repayment  of  the  principal  of  its  national  debt  to  its 
own  citizens  is  wholly  an  addition  to  the  capital  of  the 
country,  unless  the  necessary  funds  are  derived  from  a 
tax  upon  capital.  In  so  far  as  it  adds  to  capital,  it,  of 
course,  disturbs  its  ratio  to  population,  and  tends  to  bring 
about,  sooner  than  it  would  otherwise  occur,  the  period 
of  industrial  stagnation  that  inevitably  results  from  over- 
accumulation.  I^ational  net  income  and  gross  product 
are  both  diminished  by  the  process.     When  such  repay- 


254  CAPITAL  AND  POPULATION. 

ment  is  made  to  foreigners,  production  is  not  disturbed 
(and,  in  so  far  as  tlie  taxation,  from  which  the  funds  so 
expended  are  derived,  depletes  the  national  capital,  pro- 
duction is  even  increased),  but  as  the  equation  of  inter- 
national demand  is  injuriously  affected,  its  value,  though 
not  necessarily  its  amount,  is  lessened. 

All  of  the  above  remarks  apply  as  well  to  private  as  to 
public  foreign  indebtedness,  except  that  private  borrowing 
abroad,  being  always  for  productive  purposes,  affects  the 
normal  ratio  of  national  capital  to  population,  by  allowing 
foreign  capital  to  monopolize  the  avenues  for  investment, 
by  which  alone  home  accumulations  can  be  utilized  or 
retained.  This  not  only  hastens  the  period  when  capital 
will  be  found  to  have  exceeded  its  limits,  and  thus  lessens 
industrial  activity  and  production,  but  it  also  allows  for- 
eigners to  possess  themselves  of  profits  that  would  else- 
wise  have  very  soon  accrued  to  the  future  savings  of 
home  capitalists. 

There  is  no  economic  fallacy  more  firmly  fixed  in  the 
popular  mind  than  the  belief  that  a  nation  derives  advan- 
tage from  borrowing  of  its  neighbors.  We  now  see  how 
insidious  and  disastrous  such  a  policy  really  is,  and  that 
whatever  interest  and  profits  are  paid  on  such  loans  are 
purely  and  simply  gifts,  in  all  cases  where  a  tendency 
exists  in  the  indebted  nation  for  capital  to  increase  more 
rapidly  than  population.  Indeed,  such  interest  and  prof- 
its are  far  from  expressing  the  real  amount  of  such  gifts 
— a  sum,  almost  as  great,  must  be  added  as  a  consequent 
of  the  resulting  disturbance  of  the  equation  of  interna- 
tional demand. 

Within  the  country  itself,  the  effect  of  a  national  debt 
on  the  distribution  of  wealth  is  also  undesirable.  It  in- 
creases the  gross  amount  of  profits  at  the  expense  of  the 


SOME  OTHER  EFFECTS  OF  THE  LAW.    255 

wages-fund  and  real  wages.  The  capital  of  such  country 
will  soon  be  just  what  it  would  have  been  if  the  debt  had 
not  been  created,  and  it  will  demand  and  receive  the  same 
rate  and  amount  of  profit.  As  the  gross  product  is  not 
increased,  whatever  income  capitalists  obtain  from  the 
advances  they  have  made  to  the  government,  is  ulti- 
mately derived,  through  prices,  from  the  consumers,  and, 
in  so  far  as  laborers  are  consumers,  from  real  wages.  Al- 
though, therefore,  the  immediate  effect  of  the  payment 
of  the  national  obligations  is  detrimental  to  the  laboring 
classes,  on  account  of  the  decreased  production  and  less- 
ened employment  it  temporarily  causes,  the  ultimate  ef- 
fect will  be  beneficial,  in  that  it  will  give  them  a  larger 
normal  share  of  the  gross  product. 

Our  principle  also  profoundly  affects  the  controversy 
between  the  bi-metallists  and  the  advocates  of  a  single 
standard,  and  should,  I  think,  settle  the  controversy  in 
favor  of  the  former.  The  claim  of  the  latter  that  the  rela- 
tive value  of  the  two  precious  metals  depends  upon  the  cost 
of  production,  and  can  not  be  arbitrarily  fixed,  as  it  must  be, 
if  both  metals  are  to  be  used,  seems  to  me  fallacious.  So 
much  the  greater  part  of  their  value  is  due  to  their  use  as 
mediums  of  exchange,  that  all  nations  agreeing  to  use  them 
interchangeably  in  any  fixed  proportion,  not  too  much  at 
variance  with  their  value  for  other  purposes,  would  reduce 
the  two  metals,  for  the  purpose  of  scientific  discussion,  to 
one  commodity.  As  the  utility  of  the  two  would  be  not 
only  equal  but  identical,  the  effect  of  any  relative  increase 
in  the  cost  of  the  production  of  either  would  not  change 
their  relative  value,  but  only  enhance  the  rentals  of  the 
mines  from  which  the  other  was  exploited.  Thus,  if  the 
only  use  of  wheat  or  of  rye  was  to  make  bread,  and  the 
bread  from  either  grain  was  absolutely  indistinguishable 


256  CAPITAL  AND  POPULATION. 

from  that  made  from  the  other,  the  relative  value  of  the 
two  grains  could  never  differ.  If  an  improvement  in 
agriculture  should  enable  wheat  to  be  raised  at  less  than 
its  former  cost,  while  the  production  of  rje  was  unaf- 
fected, wheat  would  not  thereby  sell  for  less  than  rye, 
but  more  of  it  and  less  of  rye  would  be  grown,  and  lands 
adapted  to  wheat  would  bring  higher  rentals.  The  real 
utility  of  both  gold  and  silver  is  artificial  and  identical, 
and  their  value  in  relation  to  each  other  can  consequently 
be  arbitrarily  fixed,  if  only  the  agreement  to  do  so  be 
complete.  Their  value  as  compared  with  articles  of  nat- 
ural utility  is  not  subject,  of  course,  to  arbitrary  adjust- 
ment, but  their  value  relative  to  each  other  can  be,  at 
least,  within  the  limit  that  neither  shall  be  cheaper  than 
its  value  for  other  utilities  than  that  of  serving  as  a  me- 
dium of  exchange. 

Assuming  that  the  ratio  between  the  two  can  be  fixed, 
the  demonetization  of  silver  amounts  simply  to  a  world- 
wide contraction  of  the  currency. 

The  influence  of  price  on  industrial  activity  is  not 
sufficiently  recognized,  nor  can  it  be,  while  the  amount 
of  activity  is  supposed  to  increase  or  decrease  with  the 
amount  of  capital.  The  principle  here  advanced  that, 
under  our  present  economic  organization,  profit  being  the 
sole  stimulus  to  production,  industrial  activity  will  vary 
with  the  rate  of  profit,  within  the  limit  of  the  physical 
sufficiency  of  capital  to  supply  the  fund  for  wages,  leads 
us  to  attach  a  new  importance  to  the  phenomena  of 
price. 

A  rise  in  prices,  however  equal  and  uniform  it  may 
be,  transfers  value  from  the  creditor  to  the  debtor  class. 
This  encourages  production,  not  only  because  the  latter 
are  pre-eminently  the  class  upon  whom  the  amount  of 


SOME  OTHER  EFFECTS   OF  THE  LAW.  25T 

production  depends,  but  because,  in  such  times,  the  risk 
of  giving  credit  being  lessened,  the  credit  system  itself  is 
extended.  But  a  rise  in  prices  is  never  equal  and  uni- 
form. Any  difference  in  the  prices  of  different  material 
commodities,  however  it  may  change  the  direction,  has 
little  or  no  influence  upon  the  gross  amount  of  produc- 
tion ;  but  other  commodities  advancing  in  price  more 
rapidly  than  labor,  stimulates  production,  because  thereby 
profits  are  enhanced.  Any  rise  in  the  price  of  labor 
more  rapid  than  that  of  material  commodities,  or  decline 
in  the  latter  more  rapid  than  the  decline  in  wages,  has, 
of  course,  the  contrary  effect,  and  serves  to  limit  and  re- 
press production. 

There  is  one  peculiarity  of  the  exchangeable  value  of 
labor,  to  which,  although  it  is  involved  in  w^hat  I  have 
said,  it  would  perhaps  have  been  better  to  have  pointed 
more  distinctly  earlier  in  the  argument.  The  exchange- 
able value  of  any  article,  however  much  it  may  vary, 
can  never  exceed  its  supposed  utility ;  but  productive 
labor  has  absolutely  no  utility  of  itself,  it  is  never  worth 
more  than  it  will  produce ;  consequently  its  value  can 
never  rise  above  the  value  or  supposed  value  of  what 
it  can  produce,  less  a  satisfactory  profit  to  its  employer. 
In  proportion  as  its  value  is  less  than  this,  will  capitalists 
seek  to  employ  it,  and  the  sum  of  production  be  the 
greater  and  the  total  wages-fund  increased.  When  any 
material  commodity,  on  account  of  its  scarcity,  increases 
in  value,  the  total  amount  of  it  in  existence  may  exchange 
for  a  greater,  the  same,  or  a  less  amount  of  other  things 
than  before.  When  the  cost  of  labor  is  enhanced  on  ac- 
count of  its  scarcity,  as  compared  with  the  sum  total  of 
existent  material  products,  the  total  amount  exchanged 
(i.  e.,  employed)  will  only  obtain  a  smaller  sum  total  than 


258  CAPITAL  AND  POPULATION. 

before,  because  what  is  not  employed,  as  it  can  not  be  re- 
served, is  lost  to  its  possessors  for  ever. 

The  price  of  labor  is  affected  by  another  peculiarity. 
During  any  period  of  rise  or  of  fall  in  general  prices,  labor 
is  among  the  last  of  the  commodities  to  be  affected.  Its 
rise  or  fall  follows  that  of  the  material  commodities  it 
produces  only  after  a  considerable  interval.  It  conse- 
quently happens  that  any  period  of  advancing  prices  is 
also  a  period  of  great  industrial  activity,  and  a  period  of 
declining  prices  one  of  industrial  stagnation.  An  ephem- 
eral rise  is,  to  be  sure,  of  only  transient  advantage,  and, 
as  I  have  elsewhere  shown,  more  than  compensated  for  by 
the  results  of  the  ensuing  decline — i.  e.,  the  sum  total  of 
the  production  of  both  periods  is  less  than  if  prices  had 
remained  uniform  at  their  normal  figure.  But  when  the 
advance  in  prices  is  maintained,  the  advantage  gained  by 
it,  and  the  accumulation  it  justifies,  are  retained.  This 
explains  why  the  industrial  development  of  the  civilized 
world,  which  we  are  yet  enjoying,  was  coincident  in  its 
commencement  with  the  discovery  of  the  mines  of  Mex- 
ico and  Peru.  And  that  this  development  has  been  sus- 
tained to  the  present  time  by  the  discovery  and  exploita- 
tion of  the  mines  of  the  United  States,  Australia,  and 
Siberia,  history  does  not  allow  us  to  doubt,  although 
other  powerful  causes,  such  as  the  advance  in  science  and 
the  arts,  greater  freedom  of  individual  and  social  action, 
and  the  greater  abundance  and  availability  of  fertile  land, 
have  contributed  to  the  result. 

The  increase  of  material  wealth  and  in  the  activity  of 
exchanges,  as  well  as  the  growth  of  population,  act  as  a 
drag  upon  the  gradual  and  permanent  rise  in  general 
prices  to  which  they  largely  owe  their  being.  Yast  as 
has  been  the  increase  of  the  world's  circulating  medium, 


SOME  OTHER  EFFECTS  OF  THE  LAW.    259 

and  greatly  as  its  efficiency  has  been  increased  by  the  de- 
velopment of  the  credit  system,  the  activity  of  exchanges 
has  increased  in  nearly  equal  proportion. 

When  the  system  of  co-operation  is  fully  organized 
and  established  it  will  not  be  so,  but  as  long  as  produc- 
tion is  carried  on,  on  the  basis  of  the  wages  system,  a 
gradual  and  permanent  decline  in  prices  must  entail  a 
gradual  and  permanent  decline  in  production,  or  at  least 
greatly  retard  its  increase.  Such  a  period  must  be  one 
in  which  the  average  rate  of  profit  is  smaller,  and  the  em- 
ployment of  labor  less,  than  when  the  general  tendency 
of  prices  is  to  advance.  Under  co-operation,  the  induce- 
ment to  produce  will  not  so  much  be  profit,  as  the  desire 
to  utilize  labor ;  but,  while  employer  and  employe  are  dis- 
tinct persons,  the  amount  of  production  must  wholly  de- 
pend on  the  rate  of  profit,  and  anything  that  lowers  that 
rate,  as  a  gradual  and  permanent  decline  in  prices  would 
do,  can  not  but  depress  industry. 

The  demonetization  of  silver,  if  it  becomes  general, 
will  undoubtedly  depress  prices  to  somewhere  about  the 
point  they  reached  in  the  middle  ages,  and  will  entail  an 
incalculable  but  enormous  decline  in  the  material  pros- 
perity of  the  world.  The  adoption  of  that  policy  by 
England,  Germany,  and  the  United  States  was  mainly 
responsible  for  the  severity  and  long  continuance  of  our 
last  period  of  depression,  and,  if  it  is  continued  by  these 
nations  and  adopted  by  others,  we  may  expect  our  peri- 
ods of  industrial  activity  to  be  shorter  and  less  gainful, 
and  our  periods  of  depression  to  be  longer  and  more  se- 
vere, than  they  have  heretofore  been ;  and  to  such  degree 
will  this  result  as,  in  all  probability,  to  place  the  world 
in  the  retrogressive  state  in  which  the  total  production 
will  annually  decline. 


260  CAPITAL  AND  POPULATION. 

Any  increase  of  the  medium  of  exchange,  founded  on 
the  solid  basis  of  an  increase  of  the  precious  metals,  or  on 
that  of  a  legitimate  and  safe  extension  of  credit,  yields 
benefits  analogous  to  those  derived  from  an  inflation  of 
the  currency,  without  the  drawback  of  the  ensuing  con- 
traction, that  must  occur  when  it  is  founded  on  an  un- 
substantial basis,  or  confined  to  the  limited  area  of  a 
single  nation.  Advancing  civilization  demands  not  only 
an  equivalent  but  a  somewhat  greater  increase  in  the 
medium  of  exchange,  and  can  not  proceed  without  it,  as 
long  as  labor  continues  to  be  a  commodity. 

The  above  observations  on  prices  and  the  medium  of 
circulation  serve  to  explain  the  anxiety  with  which  com- 
mercial men  watch  the  rate  of  international  exchange  and 
the  importation  or  exportation  of  gold.  It  is  not  because 
they  are  yet  infected  with  the  exploded  fallacies  of  the 
mercantile  system,  but  because  experience  has  taught 
them  that  the  increase  of  the  circulating  medium  means 
a  period  of  higher  prices,  greater  profits,  and  increased 
industry,  and  that  the  exportation  of  gold  is  a  warning  to 
prepare  for  lower  prices,  declining  profits,  and  industrial 
stagnation. 

Further  instances  could  be  multiplied  where  theories 
are  modified  and  facts  explained  by  the  recognition  of 
the  law  I  have  attempted  to  enunciate  and  elucidate — 
the  ramifications  of  the  subject  are  endless  and  lead  in 
every  direction.  As  the  purpose  of  this  work  is  rather 
to  substantiate  than  to  apply  the  main  principle  involved, 
enough  has  been  said  on  these  points,  except  to  call  at- 
tention.to  the  fact  that  the  law,  which  I  have  endeavored 
to  explain,  affects  social  questions  as  powerfully  as  it 
does  economic.  These  have,  to  some  extent,  been  con- 
sidered, but  only  when  they  were  involved  in  the  eco- 


SOME  OTHER  EFFECTS  OF  THE  LAW.    261 

nomic  questions  under  review.  Considering  them  as 
beyond  the  strict  domains  of  our  science,  and  as  belong- 
ing to  a  higher  one,  it  would  have  been  out  of  place  to 
attempt  to  consider  them  in  their  full  bearings,  and  I 
only  mention  them  here,  that  it  may  not  be  supposed 
I  am  oblivious  of  their  relation  to  the  subject. 


CHAPTEK  XYIir. 


CONCLUSION. 


Although  it  will  involve  some  repetition,  a  gathering 
together  of  the  principal  results  obtained  into  a  conden- 
sation of  my  argument  will  not  be  out  of  place. 

We  have  first  found  an  important  variation  in  the 
definitions  of  capital,  as  given  by  Eicardo  and  Mill,  and 
have  seen  that  that  of  the  former  is  defective ;  and  that, 
while  Mill  has  rectified  the  definition  of  Ricardo,  he  has 
adopted  the  latter's  deductions,  without  perceiving  that 
they  were  only  applicable  to  capital  in  the  limited  sense 
in  which  Ricardo  used  the  term.  We  have  then  made 
the  deduction  that  over-accumulation — meaning  by  that 
term  an  increase  of  capital  beyond  the  needs  of  popula- 
tion— is  not  only  possible,  as  Mill  and  Ricardo  both  ac- 
knowledge, but  of  frequent  and  periodic  occurrence  in 
all  civilized  nations,  and  that  it  is  so  was  proved  by  the 
irrefutable  test  of  the  rate  of  profit  during  times  of  de- 
pression, and  the  periodic  occurrence  of  such  times — 
the  low  rate  that  always  obtains  in  such  periods  being  a 
certain  indication  that  capital  is  then  superabundant. 

We  then  noticed  that  the  distinction  between  dead 
and  active  stock,  although  perceived  and  acknowledged 
by  both  economists,  was  practically  ignored  in  their  argu- 
ments. 

We  also  noticed  that  the  over-accumulation  which  is 


OONCLUSIOK  263 

here  contended  for  does  not  at  all  conflict  with  the  re- 
sults obtained  by  Say  from  a  consideration  of  the  laws  of 
supply  and  demand,  but,  on  the  contrary,  is  in  full  ac- 
cordance with  them,  labor  being  considered  as  a  commod- 
ity. We  also  detected  Mill  in  an  erroneous  use  of  the 
word  "market,"  and  found  that,  the  word  really  refers, 
not  to  the  possibility  of  exchanging  at  any  price,  but  only 
to  the  possibility  of  goods  exchanging  for  the  value  of 
the  labor  that  will  reproduce  them  with  some  profit,  and 
that  a  market  is  good  or  bad  in  proportion  as  such  profit 
is  great  or  small. 

We  also  ascertained  that  the  adjustment  of  the  ratio 
of  capital  to  population,  when  producers  are  influenced 
in  their  production  by  the  hope  of  gain,  could  only  prac- 
tically be  obtained  by  a  sufficient  cessation  from  further 
production,  and  that  the  consequent  lack  of  employment 
overbalanced  to  the  laborers  the  accompanying  rise  in 
their  rate  of  proportional  wages. 

In  the  further  pursuit  of  the  argument  we  were  able 
to  rightly  discriminate  between  proportional  and  real 
wages,  and  to  show  that  they  varied  inversely  instead  of 
together,  as  has  heretofore  been  assumed.  This,  again, 
led  us  to  valuable  conclusions  on  the  labor  question,  so- 
cialism, and  co-operation,  and  enabled  us  to  make  the  im- 
portant deduction  that  a  high  rate  of  proportional  wages 
is  not,  as  Mill  and  Kicardo  everywhere  assume,  a  stimulus 
to  population,  but  the  reverse — the  real  stimulus  being 
the  rate  of  real  wages,  that  varies  inversely  wdth  it.  And 
this  deduction  threw  some  further  light  upon  the  labor 
question,  and  showed  that  the  efforts  of  the  laborers, 
through  their  present  organizations,  to  raise  money  and 
proportional  but  not  real  wages,  are  very  prejudicial  to 

their  own  interests. 
12 


264  CAPITAL  AND  POPULATION 

We  were  then  enabled  to  arrive  at  a  complete  and 
satisfactory  explanation  of  commercial  crises  and  the  in- 
dustrial stagnation  which  invariably  follows  them,  a  hith- 
erto unsolved  problem  of  the  science.  We  were  also 
enabled,  as  never  before,  to  understand  the  economic  nat- 
ure and  action  of  credit,  and  to  correct  several  miscon- 
ceptions on  the  subject. 

Having  established  the  fact  that  capital  in  civilized 
countries  constantly  tends  to  an  over-increase,  it  of  course 
followed  that  a  country  would  very  soon  obtain  any  ad- 
ditional capital  demanded  by  an  increase  in  its  popula- 
tion or  by  a  change  in  the  nature  of  its  industries,  and 
that  such  increase  would  be  the  fruit  of  labor  that  would 
otherwise  have  been  wasted  in  idleness.  This  enabled 
us  to  undermine  the  fundamental  premise  of  free  trade, 
in  so  far  as  the  distribution  of  wealtk  is  concerned.  We 
saw  that  the  gain  or  loss  to  an  individual  nation  of  im- 
porting foreign  goods  was  not  to  be  computed  from  a 
comparison  of  the  price  at  which  a  commodity  could  be 
imported  with  the  price  at  which  it  could  be  made  at 
home,  but  from  a  comparison  of  its  imported  cost  with 
the  cost  alone  of  the  labor  which  would  be  diverted  to 
its  manufacture.  We  further  showed  that  what  caused 
nations  to  manufacture  instead  of  to  cultivate  the  soil 
was,  to  but  a  slight  degree,  any  advantage  possessed  over 
their  neighbors  in  manufacturing  itself,  but  was  mainly 
the  lowness^  of  their  own  margin  of  cultivation.  A  fur- 
ther consideration  of  the  inherent  nature  of  agriculture 
and  manufacture  showed  the  latter  to  possess  great  eco- 
nomic advantages  over  the  former  as  a  national  pursuit, 
and  to  such  degree  that,  as  a  matter  of  fact,  some  coun- 
tries, with  the  least  natural  facilities  for  production,  had 
greatly  the  advantage  over  their  more  favored  neighbors 


CONCLUSION.  265 

in  the  amount  of  their  capitalized  wealth,  and  were  able 
to  equal  them  in  the  value  jper  cajpita  of  their  annual 
product,  notwithstanding  a  great  difference  in  the  re- 
spective efficiency  of  their  labor ;  and  we  saw  that  this 
unnatural  result  was  accomplished  through  the  profits, 
that  nations  with  a  high  margin  of  cultivation  could  ap- 
propriate to  themselves,  through  a  protective  policy  alone, 
and  that  the  gain  of  such  policy,  if  wisely  pursued, 
would  overbalance  any  loss  in  the  efficiency  of  labor 
that  resulted  from  its  being  diverted  from  agriculture. 

A  consideration  of  the  equation  of  international  de- 
mand, based  entirely  upon  Mill's  premises,  and  with 
some  trivial  exceptions  upon  his  deductions,  also  showed 
us  that  the  equation,  in  the  nature  of  things,  when  com- 
merce is  unrestricted,  must  be  against  an  agricultural 
country ;  and  led  us  to  the  new  and  important  principle 
that  the  gain  of  the  manufacturing  country  will  not  ex- 
press itself  in  its  rate  of  manufacturing  profit,  but  in  the 
amount  of  its  dead  stock  and  the  gross  amount  of  its 
profits  thereon.  This  heretofore  unobserved  circum- 
stance enabled  us  to  appreciate  as  never  before  the  prac- 
tical working  of  the  equation  itself,  and  explained  the 
fact  that  manufacturing  are  the  lending  nations  of  the 
world.  We  then  considered  the  distribution  of  wealth 
in  a  protected  country,  and  found  that,  though  not  as 
beneficial  to  its  laboring  classes  as  could  be  wished,  it  yet 
worked  somewhat  to  their  advantage,  especially  when  the 
policy  was  first  adopted.  "We  ascertained,  in  the  course 
of  our  argument,  that  a  manufacturing  country  can  not 
protect  itself  against  an  agricultural,  and  only  injures 
itself  by  the  attempt,  and  that  the  policy  of  "  fair  trade," 
coming  into  favor  in  England,  is  illusory  in  its  promises. 
"We  also  discovered  that  the  nations  now  benefited  by 


266  CAPITAL  AND  POPULATION. 

free  trade  will,  in  the  near  future,  be  forced  into  com- 
petition with  nations  of  a  yet  lower  margin  of  cultivation, 
and,  when  this  happens,  that  their  industry  can  only  be 
preserved,  and  that  but  partially,  by  they  themselves 
adopting  the  policy  they  now  denounce. 

A  discussion  of  rent  elucidated  the  fact  that  there  is 
an  hitherto  unnoticed  difference  in  the  effect  upon  prices 
of  that  portion  of  it  due  to  inherent  fertility  and  that  due 
to  propinquity  to  market,  and  that  the  latter  does  affect 
the  comparative  value  and  price  of  manufactured  goods, 
and  is  at  the  expense  of  the  consumer  of  such  goods 
wherever  consumed,  and  that,  when  such  consumer  is  a 
foreigner,  such  portion  of  rental  is  a  tribute  laid  by  one 
country  upon  another. 

A  consideration  of  commerce,  hitherto  left  out  of  the 
discussion,  showed  it  to  possess  advantages  as  a  national 
pursuit  superior  even  to  manufactures,  but  that  it  could 
only  be  protected  in  the  form  of  subsidies  granted  to  it, 
and  we  obtained  suggestions  as  to  our  own  national  policy 
of  the  greatest  value. 

Finally,  we  found  that  the  admitted  loss  to  the  world, 
in  the  efficiency  of  its  labor  caused  by  protection,  was 
only  the  price  that  must  be  paid  for  a  better  final  distri- 
bution of  its  labor  and  capital ;  and,  although  we  were  un- 
able to  determine  whether  the  result  was  fully  worth  the 
price,  we  did  find  several  indications  that  it  was  suffi- 
ciently so  to  remove  the  moral  stigma  of  national  selfish- 
ness from  those  nations  who  adopt  the  policy. 

Lastly,  our  principle  threw  greatly  needed  light  on 
the  subjects  of  taxation  and  national  indebtedness,  and 
afforded  a  basis  for  a  positive  decision  in  favor  of  bi- 
metallism. 

Affecting  all  these  questions  as  it  does,  the  importance 


CONCLUSION.  267 

of  the  principle  that,  in  countries  where  law  and  order 
prevail,  the  tendency  of  capital  is  to  outstrip  population, 
can  hardly  be  overestimated.  It  effects  as  great  a  revolu- 
tion in  economic  ideas  as  any  single  principle  ever  enun- 
ciated. Whether  I  have  established  it  as  a  leading  prin- 
ciple of  the  science  must  be  left  to  the  reader  to  judge. 
It  certainly  seems  to  me  to  be  in  accordance  with  every 
fact  of  history  and  experience,  to  throw  light  on  many 
intricate  subjects  not  hitherto  understood,  and  to  have  a 
practical  bearing  in  the  application  of  the  science,  that  will 
remove  from  it  the  stigma  of  consisting  mainly  of  inap- 
plicable theories — an  objection  hitherto  too  well  founded 
on  fact.  And,  lastly,  I  can  not  but  feel  it  to  be  in  the 
line  of  and  in  full  accord  with  all  well-established  eco- 
nomic laws,  and,  however  inconsistent  with  their  final 
conclusions,  purely  the  logical  result  of  the  thoughts  and 
teachings  of  the  three  great  masters  of  political  economy, 
Smith,  Eicardo,  and  Mill ;  for  which  reasons  I  venture  to 
hope  for  this  treatise  a  more  kindly  reception  than  the- 
ories of  over-accumulation  have  heretofore  received. 


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"  Professor  Young  is  an  authority  on  '  The  Sun,'  and  writes  from  intimate  knowl- 
edge. He  has  studied  that  great  luminary  all  his  life,  invented  and  improved  instru- 
ments for  observing  it,  gone  to  all  quarters  of  the  world  in  search  of  the  best  places 
and  opportunities  to  watch  it,  and  has  contributed  important  discoveries  that  have 
extended  our  knowledge  of  it. 

"  It  would  take  a  cyclopaedia  to  represent  all  that  has  been  done  toward  clearing  up 
the  solar  mysteries.  Professor  Young  has  summarized  the  information,  and  presented 
it  in  a  form  completely  available  for  general  readers.  There  is  no  rhetoric  in  his  book ; 
he  trusts  the  grandeur  of  his  theme  to  kindle  interest  and  impress  the  feelings.  His 
statements  are  plain,  direct,  clear,  and  condensed,  though  ample  enough  for  his  purpose, 
and  the  substance  of  what  is  generally  wanted  will  be  found  accurately  given  in  hia 
pages."— Popw/ar  Science  Monthly. 

IliliUSIONS  :  A  Psychological  Study.  By  James  Sully,  author  of  "  Sensa- 
tion and  Intuition,"  etc.    12mo.    Cloth,  $1.50. 

This  volume  takes  a  wide  survey  of  the  field  of  error,  embracing  in  its  view  not  only 
the  illusions  commonly  regarded  as  of  the  nature  of  mental  aberrations  or  hallucina- 
tions, but  also  other  illusions  arising  from  that  capacity  for  error  which  belongs  essen- 
tially to  rational  human  nature.  The  author  has  endeavored  to  keep  to  a  strictly  scien- 
tific treatment — that  is  to  say,  the  description  and  classification  of  acknowledged  errors, 
and  the  exposition  of  them  by  a  reference  to  their  psychical  and  physical  conditions. 

"  This  is  not  a  technical  work,  but  one  of  wide  popular  interest,  in  the  principles  and 
results  of  which  every  one  is  concerned.  The  illusions  of  perception  of  the  senses  and 
of  dreams  are  first  considered,  and  then  the  author  passes  to  the  illusions  of  introspec- 
tion, errors  of  insight,  illusions  of  memory,  and  illusions  of  belief.  The  work  is  a  note- 
worthy contribution  to  the  original  progress  of  thought,  and  may  be  relied  upon  as 
representing  the  present  state  of  knowledge  on  the  important  subject  to  which  it  ia 
devoted." — Popular  Science  Monthly. 

D.  APPLETON  &  CO.,  Publishers, 

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THE  FUNDAMENTAI.  CONCEPTS  OF  MODERN  PHrLOSOPHIC 
THOUGHT,  CRITICAI.I.Y  ANB  HISTORICALI.Y  CONSID- 
ERED. By  Rudolph  Eucken,  Ph.  D.,  Professor  in  Jena,  With  an 
Introduction  by  Noah  Porter,  President  of  Yale  College.  One  vol.,  12mo, 
804  pages.    Cloth.    Price,  $1,75. 

President  Porter  declares  of  this  work  that  "  there  are  few  books  within  his 
knowledge  which  are  better  fitted  to  aid  the  student  who  wishes  to  acquaint  him- 
self with  the  course  of  modem  speculation  and  scientific  thinking,  and  to  form 
an  intelligent  estimate  of  most  of  the  current  theories." 

MIND  IN  THE  tOWER  ANIMAI.S  IN  HEAI.TH  AND  DISEASE. 

By  W.  Lauder  Lindsat,  M.  D.,  F.  K.  S.  E.,  etc.    2  vols.,  8vo.    Cloth,  $4,00. 

"  The  author  of  this  work,  which,  regarded  merely  as  an  accumulation  of 
verified  and  classified  facts,  is  a  unique  and  precious  contribution  to  the  data  of 
comparative  psychology,  claims  that  he  entered  on  his  inquiry  without  any  theory 
to  defend,  support,  or  illustrate.  We  are  bound  to  say  that,  while  his  general 
conclusions  are  boldly  and  continually  avowed,  his  claim  of  lairness  and  caution 
is  justified  by  his  method  of  examining  particular  phenomena  ;  that  he  seems 
willing  at  all  times  to  renounce  any  impression  or  belief  which  is  shown  to  be 
scientifically  untenable."— iVew  York  Sun. 

"  In  this  work — two  volumes  of  over  500  pages— Dr.  Lindsay  marshals  a  pro- 
portionately large  number  of  facts  against  those  philosophers  who  maintain  that 
the  intelligence  of  man  differs  in  kind  and  not  simply  in  degree  from  that  of  the 
lower  animals.  It  is  one  purpose  of  his  book  to  show  that  the  main  differences 
between  man  and  the  lower  animals  exist  rather  in  their  physical  than  in  their 
mental  structure.  In  this  way  of  thinking,  all  animals  possess  not  the  semblance 
of,  but  the  true  substance  of  mind  and  will."— iVi?2^  York  World. 

"  So  far  as  we  are  aware  there  has  been  no  treatise  upon  the  subject  of  animal 
intelligence  so  broad  in  its  foundations,  so  well  considered,  or  so  scientific  in  its 
methods  of  inquiry,  as  that  which  has  been  prepared  by  Dr.  W.  Lauder  Lindsay 
in  two  large  volumes,  the  first  being  devoted  to  a  study  of  animal  mind  in  health, 
and  the  second  to  animal  mind  in  disease.  We  may  safely  say  that  his  work  is, 
in  some  respects,  the  most  important  essay  of  the  kind  that  has  yet  been  under- 
taken. His  observations  have  been  supplemented  by  a  thorough  mastery  of  the 
history  and  literature  of  the  subject,  and  hence  his  conclusions  rest  upon  the 
broadest  possible  foundation  of  safe  induction.  There  is  a  good  analytical  index 
to  the  book,  as  there  ought  to  be  to  every  work  of  the  kind." — New  York Eoening 
Post. 

THE  EI.EMENTARY  PRINCIPIiES  OF  SCIENTIFIC  AGRICUI.T- 
URE,  By  N.  T.  Lupton,  LL.  D.,  Professor  of  Chemistry  in  Vanderbilt 
University,  Nashville,  Tenu.    18mo.    Cloth.    Price,  45  cents. 

A  GI.OSSARY  OF  BIOI.OGICAI.,  ANATOMICAI.,  AND  PHYSIO- 
L-OGICAIi  TERMS.  By  Thomas  Dunman.  Small  8vo.  Cloth.  161 
pages.    Price,  $1.00. 

"  It  has  been  the  author's  task  to  furnish  here  a  small  and  convenient  but  very 
complete  glossary  of  those  terms ;  and  he  has  done  this  so  well,  both  in  his  choice 
of  terms  for  deflniticHi  and  in  his  clear  exposition  of  their  etymological  and  tech- 
nical meaning,  as  to  leave  nothing  to  be  desired  in  this  direction." — New  York 
Evening  Post.  

For  tale  by  aU  booksellers,  or  any  work  sent  by  mail,  post-paid,  on  receipt  of  price. 

D.  APPLETON  &  CO.,  Publishers, 

1,  8,  and  5  Bond  Street,  New  Tork. 


Seientifie  Publieations. 


GENERAIi  PHTSIOI.OGY  OF  MUSCLES  AND  NERVES.    By  Dr.  I. 

Rosenthal,  Professor  of  Physiology  at  the  University  of  Erlangen.  With 
BBventy-five  WoodcutB.  ("  International  Scientific  Series.")  12mo,  cloth, 
$1.50. 

"  The  attempt  at  a  connected  account  of  the  general  physiology  of  muscles 
and  nerves  is,  as  far  as  I  know,  the  first  of  its  kind.  The  general  data  for  thlei 
branch  of  science  have  been  gained  only  within  the  past  thirty  years."— ^aj^rac^ 
from  Preface. 

SIGHT :  An  Exposition  of  the  Principles  of  Monocular  and  Binocular  Vision 
By  Joseph  Lb  Conte,  LL.D.,  author  of  "Elements  of  Geology";  "Re- 
ligion and  Science  " ;  and  Professor  of  Geology  and  Natural  History  in  the 
University  of  California.  With  numerous  Illustrations.  12mo,  cloth,  $1.50. 

"  It  is  pleasant  to  find  an  American  book  which  can  rank  with  the  very  best 
of  foreign  works  on  this  subject.  Professor  Le  Conte  has  long  been  known  as 
an  original  investigator  in  this  department;  all  that  he  gives  us  is  treated  with 
a  master-hand."— 2%€  Natwn. 

ANIMAIj  IjIFE,  as  affected  by  the  Natural  Conditions  of  Existence.  By 
Earl  Semper,  Professor  of  the  University  of  Wiirzburg.  With  2  Maps 
and  106  Woodcuts,  and  Index.    12mo,  cloth,  $2.00. 

"This  is  in  many  respects  one  of  the  most  interesting  contributions  to 
zoological  literature  which  has  appeared  for  so-me  ihrnQ^— Nature. 

THE  ATOMIC  THEORY.  By  Ad.  Wttrtz,  Membre  de  rinstitut ;  Doyen 
Honoraire  de  la  Faculte  de  Medecine ;  Professeur  a  la  Faculte  des  Sciences 
de  Paris.  Translated  by  E.  Cleminshaw,  M.  A.,  P.  C.  S.,  F.  I.  C,  Assist 
ant  Master  at  Sherborne  School.    12mo,  cloth,  $1.50. 

"  There  was  need  for  a  book  like  this,  which  discusses  the  atomic  theory  both 
in  its  historic  evolution  and  in  its  present  form.  And  perhaps  no  man  of  this 
age  could  have  been  selected  so  able  to  perform  the  task  in  a  masterly  way  as 
the  illustrious  French  chemist,  Adolph  Wurtz.  It  is  impossible  to  convey  to  the 
reader,  in  a  notice  like  this,  any  adequate  idea  of  tbe  scope,  lucid  instructiveness, 
and  scientific  interest  of  Professor  Wurtz' s  book.  The  modern  problems  of 
chemistry,  which  are  commonly  so  obscure  from  imperfect  exposition,  are  here 
made  wonderfully  clear  and  attractive."— 7^6  Popular  Science  Monthly. 

THE  CRAYFISH.  An  Introduction  to  the  Study  of  ZoSlogy.  By  Professor 
T.  H.  Huxley,  F.  R.  S.    With  82  Illustrations.    12mo,  cloth,  $1.75. 

"  Whoever  will  follow  these  pages,  crayfish  in  hand,  and  will  try  to  verify  for 
Limself  the  statements  which  they  contain,  will  find  himself  brought  face  to  face 
with  all  the  ereat  zoological  questions  which  excite  so  lively  an  interest  at  the 
present  day." 

"  The  reader  of  this  valuable  monograph  will  lay  it  down  with  a  feeling  of 
wonder  at  the  amount  and  variety  of  matter  which  has  been  got  out  of  so  seem- 
ingly slight  and  unpretending  a  subject." — Saturday  Review. 

D.  APPLETON   &  CO.,  Publishers, 

1,  3,  &  5  Bond  Street,  New  York. 


Scientific  Publications. 


THE  HUMAN  SPECIES.  By  A.  De  Quatkepages,  Professor  of  Anthro- 
pology  in  the  Museum  of  Natural  History,  Paris.    12mo,  cloth,  $2.00. 

The  work  treats  of  the  unity,  origin,  antiquity,  and  original  localization  of 
the  human  species,  peopling  of  the  globe,  acclimatization,  primitive  man,  forma- 
tion of  the  human  races,  fossil  human  races,  present  human  races,  and  the  physi- 
cal and  psychological  characters  of  mankind. 

STUDENTS'  TEXT-BOOK  OF  COIX)R ;  or,  MODERN  CHROMAT- 
ICS. With  Applications  to  Art  and  Industry.  With  130  Original  Illus- 
trations, and  Frontispiece  in  Colors.  By  Ogden  N.  Rood,  Professor  of 
Physics  in  Columbia  College.    12mo,  cloth,  $2.00. 

"In  this  interesting  book  Professor  Rood,  who,  as  a  distinguished  Professor 
of  Pliysics  in  Columbia  College,  United  States,  must  be  accepted  as  a  competent 
authority  on  the  branch  of  science  of  which  he  treats,  deals  briefly  and  succinctly 
with  what  may  be  termed  the  scientific  rationale  of  his  subject.  But  the  chief 
value  of  his  work  is  to  be  attributed  to  the  fact  that  he  is  himself  an  accom- 
lished  artist  as  well  as  an  authoritative  expounder  of  e.cience.''''— Edinburgh 
^eview,  October,  1879,  in  an  article  on  "  The  Philosophy  of  Color." 


§, 


EDUCATION  AS  A  SCIENCE.   By  Alexander  Bain,  LL.  D.  12mo,  cloth, 

$1.75. 

"  This  work  must  be  pronounced  the  most  remarkable  discussion  of  educa- 
tional problems  which  has  been  published  in  our  day.  We  do  not  hesitate  to 
bespeak  for  it  the  widest  circulation  and  the  most  earnest  attention.  It  should 
be  in  the  hands  of  every  school-teacher  and  friend  of  education  throughout  the 
la.iid."—J\(eio  York  Sun. 

A.  HISTORY  OF  THE  GROWTH  OF  THE  STEAM-ENGINE.    By 

Robert  H.  Thurston,  A.  M.,  C.  E.,  Professor  of  Mechanical  Engineering 
in  the  Stevens  Institute  of  Technology,  Hoboken,  N.  J.,  etc.  With  163 
Illustrations,  including  15  Portraits.    12mo,  cloth,  $2.50. 

"  Professor  Thurston  almost  exhausts  his  subject ;  details  of  mechanism  are 
followed  by  interesting  biographies  of  the  more  important  inventors.  If,  as  is 
contended,  the  steam-engine  is  the  most  important  physical  agent  in  civilizing 
the  world,  its  history  is  a  desideratum,  and  the  readers  of  the  present  work  will 
agree  that  it  could  have  a  no  more  amusing  and  intelligent  historian  than  our 
author."— ^ostori  Gazette. 

STUDIES  IN  SPECTRUM  ANAI.TSIS.  By  J.  Norman  Lockter,  P.  R.  S., 
Correspondent  of  the  Institute  of  France,  etc.  With  60  Illustrations.  12mo, 
cloth,  $2.50. 

"  The  study  of  spectrum  analysis  is  one  fraught  with  a  peculiar  fascination, 
and  some  of  the  author's  experiments  are  exceedingly  picturesque  in  their  re- 
sults. They  are  so  lucidljr  described,  too,  that  the  reader  keeps  on,  from  page 
to  page,  never  flagging  in  interest  in  the  matter  before  him,  nor  putting  down 
the  book  until  the  last  page  is  reached."— iVi2M>  York  Evening  Express. 

D.  APPLETON  &  CO.,  Publishers, 

1,  3,  &  6  Bond  Street,  New  York. 


r  14  DAY  USE 

J    RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

Tel,  No.  642-3405 
Kenewed  books  are  subjea  to  immediate  recall. 


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